Coase and the Chicago School

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This blog is a sort of follow up to this excellent essay on Coase and the Chicago School of economics:

I just discovered this seminar – convention held at the University of Chicago, with all of the usual suspects:

The audio is of poor quality, but if you listen carefully, you can hear Richard Epstein, Harold Demsetz, Kevin Murphy, Bill Landes, among others, discussing Ronald Coase. The first question from the audience is from Gary Becker. It goes on for about 90 minutes. At the 69 minute point, it would appear that Epstein defends my critique of Coase on the lighthouse.

According to Luis Rivera, my research assistant, this is what was said at that point:

A gentleman begins to speak at 1:09:09. He says: “My favorite Coase article is on the light- his article…” -Attendee (Mark) *interrupted by Epstein* “On the lighthouse. That’s wrong, actually.” -Epstein”Yes” -Demsetz. That article is wrong” -Epstein”Yes, it is wrong.” -Demsetz “It’s brilliant but it’s wrong.” -Epstein “In that respect, I’m interested in a response by each of you on that article and I wonder if any of you have seen the article by Walter Block which disputes this whole argument that lighthouses were privately funded originally and apparently they’ve always been publicly funded. So, can any of you comment on that? And I might also mention that the lighthouse is a very good symbol for Ronald Coase. Can any of you comment on that article. I might also mention that the lighthouse is a very good symbol for Ronald Coase. I noticed that Samuelson has commented on it on his textbook. ?????? has mentioned that every case he has looked at is a public good. I’d like to get the response of the four of you. Is the lighthouse a public good is it a private good. How do you see Coase’s article on the lighthouse?” -Attendee (Mark)  “What the lighthouse is or isn’t is partially an empirical question and there is obviously debate about that but I am not going to shed any light on. But the article itself does have a defect in it, I believe. I don’t know if it’s the same thing that you (Epstein) are going to point to. It was an attempt to show that the free rider problem could be dealt with privately but it isn’t dealt with privately. There is a government there ???? supports and collects the payments and I think that is the defect of it. Now, the answer to that which is not an answer I like…is yes but it shows how private parties can get together to get government to do something. But I think that’s a defect in it.” -Harold Demsetz “Let me tell you – well Harold’s right about this. What happened was there are two ways you can fund lighthouses. One of them is for the lighthouses which were not design to deal with the costal traffic but were designed to deal with entrance and support. What happened was the way they paid for the lighthouse is when you paid your customs duties some fraction of that fee collected by government was used to maintain the lighthouse and the objection that was made in the 1830’s to that particular configuration was they priced it at monopoly levels and so that you’re paying too much for the kind of service in question and they thought that if you switched to direct public funding you would be able to eliminate the monopoly problem and then of course what you do is you create all sorts of other problems. How many lighthouses do you build and so forth. So, in the end it’s this exact same trade-off that you had in the marginal cost controversy. You could pick any way of financing these things and everyone one of them is going to have some kind of a defect. But if you think of the time when the switch took place 1830’s this is not 1906 this is not the Trade Disputes Act this was a perfectly classic question if you have multiple ways of funding public goods which do you choose and why?” -Richard Allen Epstein

A few points about this. First, this rendition might not be fully accurate. As indicated above, the sound quality of this material was not good. (It is surprising that the University of Chicago couldn’t do better in this regard; certainly, the audio quality put out by the Mises Institute is much better). Second, although it is I who is acknowledged for criticizing Coase on the lighthouse, the major part of the credit should go to my co author on this matter, Bill Barnett. I had initially misinterpreted Coase. Bill set me straight on this issue.  Here are my, our, publications on this issue:

Barnett, William II and Walter E. Block. 2007. “Coase and Van Zandt on Lighthouses,” Public Finance Review, Vol. 35, No. 6, November, pp. 710-733;;;

Barnett, William II and Walter E. Block. 2009. “Coase and Bertrand on Lighthouses,” Public Choice; 140(1–2):1–13;

Block, Walter E. 2011. “Rejoinder to Bertrand on lighthouses.” Romanian Economic and Business Review, Vol. 6, No. 3, Fall, pp. 49-67;;



1:55 am on January 2, 2014