Market Theory and the Lighthouse System

23 Pages Posted: 9 Aug 2018

See all articles by Rosolino Candela

Rosolino Candela

Mercatus Center at George Mason University

Vincent Geloso

Bates College

Date Written: July 25, 2018


In this chapter, we point out that Kirzner’s focus on the market process and entrepreneurial alertness to profit opportunities that come from improving allocative efficiency (or pushing back the frontiers of production possibilities) is universal in that it can be applied to what appears to be the most unassailable “bailey” of market failure theory. To do so, we consider the historical case of lighthouses which, because the light they produced to guide ships in the age of sail was non-rivalrous and non-excludable, is considered the textbook example of a “pure” public good. We point to recent research that show that the market process could have led to the production of efficient maritime safety services but that it was prevented from operating by state-mandated monopolistic guilds. As such, we argue that even this seemingly impregnable bailey of market failure theory fails to withstand Kirzner’s argument.

Keywords: Israel Kirzner; Lighthouses; Efficiency; Regulation

JEL Classification: B53; D72; L51

Suggested Citation

Candela, Rosolino and Geloso, Vincent, Market Theory and the Lighthouse System (July 25, 2018). Available at SSRN: or

Rosolino Candela

Mercatus Center at George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

Vincent Geloso (Contact Author)

Bates College ( email )

Department of Economics
Lewiston, ME
United States

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