Lighthouses: Economics & Government Services

• Lighthouses are often used in economics to exemplify services best provided by the government due to the perceived difficulty of collecting payment from benefiting ships, making private operation unprofitable.

Historical Perspectives on Lighthouse Provision

• John Stuart Mill argued governments should maintain lighthouses because collecting tolls from ships at sea is impossible, necessitating state-funded and compulsory provisions.
• Henry Sidgwick noted lighthouses exemplify the problem that free exchange cannot guarantee adequate remuneration for services, particularly when collecting payment is impractical.
• A.C. Pigou utilized the lighthouse example to illustrate uncompensated services where the marginal net product is less than the marginal social net product because demanding payment from third parties is technically difficult.
• Paul A. Samuelson argued governments should provide indispensable public services like lighthouses, as private firms cannot profit since they can't claim a price from beneficiaries, further asserting government action is justifiable due to external effects.
• Samuelson highlights the paradox where the government must provide lighthouses because private firms cannot charge, but shouldn't be allowed to charge even if possible, a point differing from Mill, Sidgwick, and Pigou, who saw charging difficulties as a key consideration for policy.
• Mill's argument wasn't ambiguity-free, suggesting government should step in because ships cannot be charged tolls, unless indemnified by a compulsory levy, indicating an acceptance of tolls in principle.

The British Lighthouse System

• The British lighthouse system is operated by Trinity House (England and Wales), Commissioners of Northern Lighthouses (Scotland), and Commissioners of Irish Lights (Ireland).
• Expenses are covered by the General Lighthouse Fund, which is funded by light dues paid by shipowners, with Trinity House responsible for payment arrangements and account maintenance, while customs authorities collect dues at ports.
• The Department of Trade oversees the General Lighthouse Fund, similar to the Treasury's role in government departments, approving budgets after discussion at an annual Lighthouse Conference in London, involving the Lights Advisory Committee that represents shipowners, underwriters, and shippers who provide a review procedure.
• Light dues are determined by the Department to cover likely expenditures over time.
• The basis for levying light dues was set out in the Merchant Shipping (Mercantile Marine Fund) Act of 1898, with charges per net ton payable per voyage, varying for "Home Trade" and "Foreign-going" ships.
• Some ships, like sailing vessels exceeding 100 tons and cruise ships, pay a lower rate, while others such as British/Foreign government ships, fishing vessels, and small vessels are exempt.
• The General Lighthouse Fund covers expenses, including colonial lighthouses and wreck marking/clearing, plus expenditures on "local lights" which are funded through port dues.

Evolution of the British Lighthouse System

• Understanding Mill and Sidgwick requires knowledge of the 19th-century lighthouse system and its evolution.
• Trinity House is the principal authority in England and Wales which is also the main pilotage authority for the United Kingdom.
• Trinity House maintains homes, administers charitable trusts for mariners and is represented on harbor boards.
• Trinity House evolved from a medieval seamen's guild, receiving incorporation in 1514, with its charter granting pilotage regulation rights.
• Trinity House didn't concern itself with lighthouses until much later.
• Before the 17th century, few lighthouses existed; seamarks like church steeples and buoys aided navigation.
• The Lord High Admiral regulated seamarks, appointing deputies to collect dues.
• Trinity House gained the right to regulate seamarks in 1566, ensuring privately owned marks were maintained.
• Private individuals constructed lighthouses after Trinity House built lighthouses at Caister and Lowestoft.
• These individuals obtained patents from the Crown to charge tolls on benefitting ships, requiring petitions from shipowners.
• Tolls were collected at ports by agents or customs officials, varying by lighthouse/vessel size.
• Trinity House began leasing patents to private individuals for lighthouse operation, securing cooperation instead of opposition.
• An example of the Eddystone lighthouse, located off Plymouth, went through 4 lighthouse constructions by 1759.
• In 1665, Trinity House received a petition for a lighthouse but deemed it difficult, opening the door for private enterprise.
• By 1759, the government gave Winstanley's widow a government pension, after a lighthouse was swept away.
• By the early 19th century, private providers played a significant role, causing the 1834 Committee to state there were 56 total lighthouses, with 14 were ran by the private sector.

Lighthouse Consolidation

• Trinity House had acquired 12 lighthouses by 1820 due to lease expirations.
• Since Trinity House main building activity began in the late 18th century, pre-existing dominance of private lighthouses was prominent.
• D.A. Stevenson stated that in 1786, the Corporation determination to erect lighthouses had never been strong.
• Parliament favored Trinity House purchasing remaining private lighthouses.
• An act of Parliament vested all lighthouses in England with Trinity House.
• Trinity House purchased leases for Flatholm, Ferns, Burnham, and North and South Forelands at the cost of approximately £74,000.
• The rest of the private lighthouses totaled £1,200,000 for Smalls, Tynemouth, Spurn & Skerries.
• The consolidation saw support because it was thought support would lead to decreased lighthouse dues.
• The 1834 Committee stated conducting these establishments was heavily taxing the trade for the benefit of a few private individuals who had been favored with that advantage by the Ministers and the Sovereign of the day.

Post-Consolidation Challenges

• Light dues weren't reduced until after 1848, once loans were paid off.
• Some could have been achieved by having Trinity House not to earn a net income from its operation.
• Funds went to charitable purposes like seamen, sailors, their family and orphans.
• The Government wanted the proceeds of the light dues not to be used for these efforts.
• The proceeds were of similar nature to that of similar organizations.

1853 and Beyond

• By 1853, there was reorganization within the Marine Fund to account for lighthouse services fees and expenses.
• By 1898, funds were now limited to the usage of the service.
• The charge no longer was dependent on ship passing, or presumed to derive a benefit.

Conclusion and Analysis

• Examination of British system and evolutions shows remarks from Mill, Sidgwick, and Pigou had lessons.
• Mill stated without the British system, there would be no private operation of lighthouses.
• British lighthouses receive benefits, but don't pay at British ports, so it's unclear what would happen with governments to compel nationals to pay the toll or not.
• If government did offer support, it cause British Governments and Treasury to feel obliged to supervise lighthouse service.
• The Light Advisory Committee would be discarded because it's financed out of taxation, leading to less efficiency.
• The Chairman of the Comittee stated there's one argument for maintaining service as it is, is impression with shipowners, and they are jealous of expenditure, and scrutinize it.
• Move could cause a less appropriate administration structure.
• Some ships now discouraged with the voyage for the light dues would not.
• Hard to resist benefit from endomenment of light dues.
• Studies of how activities are actually carried out within different institutional frameworks will allow us to discover which factors are important.
• Early history indicates lighthouse service can be provided by private enterprise.
• The role of the government was based on the establishment rights of lighthouse

Additional conclusion

• Later provision of lighthouses were entrusted to Trinity House, but continued to be financed by tolls.
• Never been used in Britain.
• Would precude private ownership.
• Governmental system operations are unknown.
• Don't use lighthouse as source of government.