The lightship in economics

By Rosolino A. Candela & Vincent J. Geloso.

 

"Abstract

What role does government play in the provision of public goods? Economists have used the lighthouse as an empirical example to illustrate the extent to which the private provision of public goods is possible. This inquiry, however, has neglected the private provision of lightships. We investigate the private operation of the world’s first modern lightship, established in 1731 on the banks of the Thames estuary going in and out of London. First, we show that the Nore lightship was able to operate profitably and without government enforcement in the collection of payments for lighting services. Second, we show how private efforts to build lightships were crowded out by Trinity House, the public authority responsible for establishing and maintaining lighthouses in England and Wales. By including lightships into the broader lighthouse market, we argue that the provision of lighting services exemplifies not a market failure, but a government failure."

See also Why consider the lighthouse a public good?. Excerpts:

 

"Historically, maritime safety was provided through a plethora of different services meant to reduce the likelihood of being ship- wrecked (or beached). This included services like ballastage (filling the bottom of an empty ship with sand to give it stability) or pilotage (local experts boarding at safe points to guide foreign ships to ports). These services were purely private goods – they were excludable and rivalrous. They were also complements to light- houses. For example, a pilot’s efficiency would be superior if he had access to a lighthouse. This opens the door the possibility for firms to bundle the production of private goods and public goods in ways that can price in free-riders (Bakos and Brynjolfsson, 1999). As Cornes and Sandler (1984, 1986) pointed out, once joint produc- tion of private and public goods is possible, most of the conditions behind the conventional wisdom regarding the provision of pure public goods no longer hold. More importantly, the complementar- ity between the goods brings out a capacity to privatize the whole bundle even if one of its components is a public good. The comple- ments to the lighthouse have never, to the best of our knowledge, been considered in the economics literature."

"Candela and Geloso (2018a) illustrate this point with respect to lightships, also known as floating lighthouses. In 1731, two entrepreneurs, David Avery and Robert Hamblin, moored the world’s first modern lightship in the Thames River. The particular importance of the Nore lightship was that it was introduced pre- cisely at a time when traffic at the Port of London was increasing rapidly. During the 18th century merchant traffic entering the Port of London stood increased nearly fourfold, from 157,035 tons in 1702 to 620, 845 tons by 1794 (House of Commons, 1796, p. V). The production of the lightship was strategically placed at the shallow mouth of the Nore bank, at the confluence of the Thames and Med- way rivers, where lighthouses could not be constructed and the risk of shipwreck was highest. The willingness of entrepreneurs, such Avery and Hamblin, to supply a lightship, rather than construct- ing another navigational aid, such as buoy or beacon, emerged only when the profitability of accommodating additional commercial ships rose. Therefore, the consumption of lighting services grew more rivalrous as commerce increased, as well the cost of ship- wreck. It was the rivalrousness of lighting services that incentivized Avery and Hamblin to advertise their product, price discriminate based on tonnage, and therefore craft ingenious way to exclude non-payers. This included the use of subscription payments by which they were able to overcome free-riding. The fact that the lighthouse (and lightship) has been treated as a public good, and therefore as non-rivalrous, has directed economists’ attention away from the various ways in which lighting services were provided, and how excludability was an endogenous feature of such rival- rousness"