July 2009 -- While extending the scope of spectrum property rights promotes efficiency, such
reforms are often deterred by equity concerns. Theoretically, however, the windfalls
may be negative. Relaxing license restrictions may increase profits by allowing
enhanced productivity, yet liberalization across a class of licensees can
reduce the expected profits by increasing competitiveness. This article examines
license value changes for regimes that decisively shift toward private property
rights in radio spectrum by analyzing the average prices paid in international
cellular phone license auctions during 1995–2001. This unique data set encompasses
1,365 licenses assigned by competitive bidding in 38 auctions held in 24
countries. Licenses awarded by regimes with more expansive spectrum property
rights generated winning bids that were 61 percent lower, adjusting for other
factors. This evidence reverses the equity argument against liberalization over
the policy margin studied and is consistent with Coase’s view that property
rights lower retail prices, thereby increasing efficiency.
Introduction: Since Ronald Coase’s (1959) seminal analysis of property rights to radio spectrum,
economists have advanced the notion that liberalizing the rights held by
wireless users would expand social welfare (Levin 1971; Webbink 1980; Kwerel
andWilliams 1992, 2002; Huber 1997; Rosston and Steinberg 1997; Hazlett 2001;
Rosston and Hazlett 2001; Faulhaber and Farber 2002). This policy position has
been adopted—categorically in a handful of cases and incrementally in many
more—in reforms throughout the world. The market allocation of radio spectrum,
which requires exclusive ownership of radio waves, is increasingly acknowledged
to be superior to administrative planning mechanisms now pejo-ratively referenced as “command and control” (U.S. Federal Communications
Commission 2002).1 Indeed, a group of “37 concerned economists” recently
enunciated the economic consensus by petitioning the U.S. Federal Communications
Commission to relax all restrictions on the use of spectrum by a licensee
and instead enforce only interference contours and antitrust rules (Rosston and
Hazlett 2001).
Parallel to the economic argument for liberalization, policy makers in the
United States, European Union countries, and elsewhere are considering an
extension of licensee rights by permitting secondary markets to reassign wireless
bandwidth from regulatory allocations. This change could give a television broadcaster,
for instance, the opportunity to sell the frequency space allocated to its
TV license to a mobile phone operator looking to expand capacity for wireless
voice and data services.
Citation
"Property Rights and Wireless License Values" by Thomas W. Hazlett, 51 Journal of Law and Economics 563-98 (August 2008), Quick Links: Thomas Hazlett
Related Scholarship
"Tragedy T.V.: Rights Fragmentation and the Junk Band Problem" by Thomas Hazlett, October 2, 2009 (forthcoming publication Spring 2010), Quick Links: Gridlock Economy Conference
"U.S. Wireless License Auctions: 1994-2009" by Thomas Hazlett, ACCC Conference in Brisbane, Australia, July 14, 2009, Quick Links: Thomas Hazlett"
A Welfare Analysis of Spectrum Allocation Policies” by Thomas W. Hazlett & Roberto E. Muñoz, 40 RAND Journal of Economics 424 - 454 (2009), Quick Links: Thomas Hazlett, Roberto E. Muñoz
"Property Rights and Wireless License Values" by Thomas W. Hazlett, 51 Journal of Law and Economics 563-98 (August 2008), Quick Links: Thomas Hazlett
"A Law & Economics Approach to Spectrum Property Rights: A Response to Professors Weiser & Hatfield" by Thomas W. Hazlett, 15 George Mason Law Review 975-1023 (June 2008), a response to "Spectrum Policy Reform and the Next Frontier of Property Rights" by Philip J. Weiser & Dale Hatfield, 15 George Mason Law Review 549-609 (Spring 2008), Quick Links: Thomas Hazlett
"A Rejoinder to Weiser and Hatfield on Spectrum Rights" by
Thomas W. Hazlett, 15 George Mason Law Review 1031-39 (June 2008), a rejoinder to: "Property Rights in Spectrum: A Reply to Hazlett" by Philip J. Weiser & Dale Hatfield, 15 George Mason Law Review 1025-30 (June 2008), Quick Links: Thomas Hazlett
"Optimal Abolition of FCC Spectrum Allocation" by
Thomas W. Hazlett, 22 Journal of Economic Perspectives 103-28 (Winter 2008), Quick Links: Thomas Hazlett
