Why do private markets usually fail to provide lighthouses
A)Lighthouses cost too much to build relative to their benefits.
B)Government intervention makes it hard for private lighthouse owners to compete in the market.
C)Ship captains have incentives to use lighthouses without paying.
D)Lighthouses are valued very little by ship captains these days.

Question

Quizplus · Accepted Answer

Private markets usually fail to provide lighthouses because ship captains have incentives to use lighthouses without paying. Lighthouses are public goods, which means that their benefits cannot be easily excluded from non-paying users (such as ship captains). This creates a free-rider problem, where individuals can benefit from the lighthouse without paying for its construction and maintenance. As a result, private lighthouse owners would not have sufficient revenue to cover their costs and would not be able to compete in the market. Government intervention may be necessary to address this problem and provide lighthouses as a public good. A is incorrect because the benefits of lighthouses can be significant in terms of saving lives and reducing the risks of shipwrecks. B is partially correct, as government intervention may make it more difficult for private lighthouse owners to compete, but this is not necessarily the primary reason for market failure. D is incorrect, as lighthouses continue to be valued by ship captains for navigation and safety purposes.

Why Do Private Markets Usually Fail to Provide Lighthouses