Using Coase’s analysis of the lighthouse as a public good, discuss whether or not true public goods can be efficiently managed by a private market.
After having lived most of my life in Brazil, spending some time in Europe and have been living in the United States for a couple year, my short answer would be that depends on the country and what will be managed by a private market, however, I believe that must be some profit limitations on the contract. Since I spent most of my life in Brazil, I will discuss my point of view based on that. In Brazil, the government built many roads and left them to the private sector for administration and maintenance. Since corruption is very common in Brazil, unfortunately, those contracts were overpriced and those private companies were allowed to do everything they want in order to make more money as possible, thus they have put a lot of tolls and left us, Brazilian citizens, with no option to go to some specific places without having to pay tolls, and the maintenance they were supposed to provide, most of the time they just do not do it and leave a lot of holes and roads in bad conditions. I think that some goods are essential for the people and those should be managed by the government or at least limit their profit if they decide to be managed by a private market. Although it can be challenging for a private market efficiently manage public good because they will try to maximize their profit, I believe that can happen in some countries I believe that some sector such as mail delivery and airports, for example, can be efficiently managed by a private sector.
Is Coase correct in his claims that the British Lighthouse system is a private market?
Coase found that ships owners and their operators in British formerly petitioned to the Crown to give them permission for some company to build a lighthouse and charge a specific fee for vessels benefiting from it. These fees were collected at ports by the agents of the lighthouses, where ships owners had to pay fees according to the tonnage of the vessel, generating profits to the lighthouse owners. The high development costs appear to have been lower than the revenues, as private entrepreneurs have built more lighthouses. Coase, therefore, found that the lighthouse belonged to private companies that financed, built, operated, and therefore were able to sell their services. The government role was limited to the establishment and implementation of ownership rights to lighthouses. Once these rights were established, the public goods could become private, as indeed occurred with the British Lighthouse system. Based on that, we can say that the British Lighthouse system is a private market.
Can you think of an example where a private market can efficiently manage a public good?
I believe that airports in Brazil are a good example. For years and years, all airports in Brazil were managed by the government, Infraero, and as a result, we had the busiest and outdated airport in South America, operating above its capacity for years. In 2012 the GRU airport was given to some private company and the airport has been improving a lot. They have built a whole new terminal for international flights and left the other terminals for domestic flights. For us, Brazilians, who travels frequently, it was clear how the airport has improved and provided a better service to the travelers. Aircraft were sent to a remote parking lot because there was no jet bridge available in peak time, and it used to take three times more to get in the terminal and the luggage if you had checked one. They still have a long way to go, the projects and construction still ongoing. I have no doubt that was the smartest decision that the government made.