In most economics textbooks, lighthouses are considered the canonical nonrival, nonexcludable goods — i.e., pure public goods. I use them as an example in my essay on the death of copyright,
“Steal This Essay 1: Content Is a Pure Public Good”, arguing that content is beginning to resemble lighthouses in being nonrival and nonexcludable.
However, if lighthouses are supposed to be a public good, it’s quite confusing that a number of them in the 18th century were privately owned. Public goods are regularly used as an example of when government intervention is necessary, because private suppliers will provide too few (in the case of lighthouses) or too many (in the case of commons grazing). As a result, conservatives hate public goods and would prefer that they didn’t exist, and liberals would like to see them everywhere, making for quite the idelogical debate. (On a side note, in “Steal This Essay 3: How to Finance Content Creation”, I show government action as just one of four potential ways to fund content as a public good.)
In the case of lighthouses, Daniel Davies (quoted by Brad DeLong) makes the critical point to understand why some lighthouses can be private and why some (even if they’re privately administered), must be funded as a non-excludable public good:
Lighthouses which are built in order to guide ships into a port are not problematic in the slightest. They are a service used only by users of the port, they are paid for by the port authority, and one collects revenue for their upkeep by going round to the ship when it docks and asking for it, bundled with the rest of the services which the port fee buys you…. However… if you want a lighthouse to warn ships away from a hazard of some sort, rather than to draw them toward a port, then you do have a problem in collecting your revenue; if you’re manning the lighthouse on Eddystone Rock, then if you’re in a position to walk over to a captain to deliver your bill, he’s most likely not in a position to pay you, because he’s crashed…. “Lighthouses” don’t form a homogeneous class of capital assets.
Davies goes on to ridicule the idea that “lighthouse services” are not a public good because they were administered by a private entity:
Private lighthouse operators would not negotiate a market price for “lighthouse services” with passing ships. The King gave lighthouse operators the power to demand payment from passing ships. And “…a system under which the government of the day gives you the authority to demand a payment from every ship that enters a port, and which states that failure to recognise this authority is treason (at the time, punishable by death), does not really look to me to be very much like a free market exchange. In fact, in giving the producer of a product the authority to demand on pain of death or imprisonment that everyone in a particular market has to buy their product, would seem to me to be… government involvement…”
So, we should all (even Coase and Samuelson) be able to agree that the textbooks should be updated to say “hazard-avoidance lighthouses are pure public goods”.