I have a new working paper out. It proposes a price theory-based explanation of why states nationalize the production of “public goods” (i.e., non-excludable and non-rivalrous). This is different than existing explanations as the theory ignores whether private provision is efficient or superior to public provision. I call it the “redistributive engine” theory whereby the state nationalizes because it can extract rents that are redistributed to its agents and key interest groups. The theory also allows for nationalization to be welfare-enhancing but — unlike previous theories — it is not a necessary condition (nor is it a sufficient one). I apply it to the case of the federalization of lighthouses in the American Republic from 1789 to 1815. The paper is here on SSRN and the abstract is below:
If private provision of public goods is both feasible and optimal, why do states intervene and assume their provision? This question parallels the broader inquiry of whether state provision can be explained without resorting to public interest justifications or suboptimal private provision. We answer that states take over the provision of public goods from the private sector depending on the political rents that can be secured in other markets (i.e., those that are not that of the public goods)—even if they potentially reduce economic activity. We call this the “redistributive engine” motivation, and it allows us to be agnostic about both the quality of private provision and the net outcome of public takeover. It is a price-theoretic justification only. Using the case of American lighthouses in the Early Republic (1789 to 1815) as illustration, we demonstrate that federal control of lighthouses was part of a rent-seeking arrangement that introduced subtle but significant protectionist measures for the domestic shipping industry and a broader hidden tariff (which is often unmeasured by economic historians). In the process, federal oversight of lighthouses provided a mechanism for patronage distribution, facilitating coalition-building and political consolidation. Ergo, a redistributive engine whose net effect is unclear.
Vincent Geloso 