Berkeley Technology Law Journal Vol. 28, 2013, George Mason Law & Economics Research Paper No. 12-55. Thomas W. Hazlett, Professor of Law & Economics, George Mason University School of Law, Sarah Oh, Research Fellow, Information Economy Project, and Ph.D. Student, George Mason University Department of Economics.
In the century since the Radio Act of 1912 initiated U.S. spectrum allocation rules, a precise definition of “harmful interference” – the control of which forms the rationale for regulation – has eluded policymakers. In one sense, that result is unsurprising; rights are always defined incompletely. In another sense, however, the regulatory system is dysfunctional, severely limiting the productive use of spectrum while locked down in years-long border disputes. These disagreements have, in turn, triggered calls to develop brighter lines and fuller engineering specifications of “harmful interference.” Yet, spectrum use rights featuring technically fuzzy borders, awarded in economically efficient bundles, generate robust market development. The key ingredients are (a) exclusive, flexible use rights; (b) frequency borders set via standardized edge emission limits; (c) large bundles of complementary rights, limiting fragmentation; and (d) fluid secondary trading, allowing mergers to end border disputes by eliminating borders. Regulators should focus less on delineating precise interference contours, and instead expeditiously distribute standard bandwidth rights to economically responsible agents, taking care to avoid undue fragmentation (and tragedy of the anti-commons). These lessons are illustrated in many episodes, including those involving reallocation of the broadcast TV band, the emergence of HD radio, the Nextel/public safety “spectrum swap,” and the ongoing WCS/SDARS dispute. Each instance reveals that economic incentives, not engineering complexity, drives productive coordination of radio spectrum use – or blocks it.
BTLJ Download: http://btlj.org/data/articles/28_1/0227-0340_Hazlett_081313_WEB.pdf
SSRN Download: http://ssrn.com/abstract=2135098