The provision of public goods under Islamic law: origins, impact, and limitations of the waqf system.

The Islamic waqf appears to have emerged as a credible commitment device to give property owners economic security in return for social services. Throughout the Middle East, it long served as a major instrument for delivering public goods in a decentralized manner. In principle, the manager of a waqf had to obey the stipulations of its founder to the letter. In practice, the founder's directives were often circumvented. An unintended consequence was an erosion of the waqf system's legitimacy. In any case, legally questionable adaptations proved no substitute for the legitimate options available to corporations. As it became increasingly clear that the waqf system lacked the flexibility necessary for efficient resource utilization, governments found it ever easier to confiscate their resources. In the 19th century, the founding of European-inspired municipalities marked a formal repudiation of the waqf system in favor of government-coordinated systems for delivering public goods. Whatever its level of development, every society must grapple with the challenge of providing "public goods"-goods that are nonexcludable (not easily denied to unauthorized consumers) as well as non-rival (capable of being enjoyed by many consumers at once). The private provision of such goods is not impossible; language conventions and measurement standards offer examples of pure public goods that have emerged without the guidance or interference of a governing authority. Yet, if only because competitive markets do not always supply such goods efficiently, various forms of state intervention have been ubiquitous. The public good of national defense tends to be supplied directly by governments. Other public goods are provided by government-enforced private monopolies. For example, technological innovations are promoted through patents that give inventors exclusive rights to exploit their inventions commercially. Of course, the known mechanisms do not guarantee efficiency (Comes & Sandler 1996:ch. 1-2, 6-10). Nor are they necessarily motivated by this goal. Rent-seekers promote delivery mechanisms that raise prices above the levels necessary for profitability (Rowley et al. 1988; Shleifer & Vishny 1998:ch. 1-9). In the premodern Middle East, from 750 C.E., perhaps even earlier, an increasingly popular vehicle for the provision of public goods was the waqf, known in English also as an "Islamic trust" or a "pious foundation." A waqf is an unincorporated trust established under Islamic law by a living man or woman for the provision of a designated social service in perpetuity. Its activities are financed by revenue-bearing assets that have been rendered forever inalienable. Originally the assets had to be immovable, although in some places this requirement was eventually relaxed to legitimize what came to be known as a "cash waqf." The reason the waqf is considered an expression of piety is that it is governed by a law considered sacred, not that its activities are inherently religious or that its benefits must be confined to Muslims. Traditionally, various public goods that are now generally provided by government agencies were provided through private initiatives. Not until the second half of the 19th century did the giant cities of the Middle East begin to establish municipalities to deliver urban services in a centralized and coordinated manner. Even a lighthouse on the Romanian coast was established under the waqf system,' which is particularly noteworthy in view of the modern intellectual tradition that treats the lighthouse as the quintessential example of a pure public good that must be provided by the government out of tax revenues. It is in reaction to this tradition that Ronald Coase (1974) drew attention to several 19th-century British lighthouses constructed and administered by private individuals.2 However, contrary to what is sometimes presumed, Coase did not discover cases in which the state played no role whatsoever. …