Private markets usually fail to provide lighthouses because
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 fail to provide lighthouses because there is a free-rider problem. Ship captains have an incentive to use the lighthouse, but they do not want to pay for its maintenance and construction. As a result, no private owner would have an incentive to build a lighthouse because the benefits of the service would be spread across all users, while the costs would be borne by a single owner.

Private Markets Usually Fail to Provide Lighthouses Because