Abstract

The purpose of this paper is to discuss the incentive structure or the mechanism that defines the private and public provision of public goods. Analytic narratives are used based on historical studies of the provision of lighthouse services in Estonia. The latter allows a theoretical discussion over the boundaries of private initiatives in public good provision and also allows a dialogue with Coasean principles. Findings show that there is no clear-cut division between private and public provision, rather throughout history there have been some combinations of private and public provision. Private agents are only able to provide lighthouses with the aid of supportive institutions – rewards for lighthouse owners and credible threat of punishments to the ship owners. Rewards must be at least as big as costs of exclusion, e.g. central collection of light dues; punishment of the ships that shrink in payment; provision of information about light dues and technical matters.