A Welfare Analysis of Spectrum Allocation Policies

40 RAND Journal of Economics 424–54, Autumn 2009.  Thomas W. Hazlett, Professor of Law & Economics, George Mason University School of Law, Roberto E. Muñoz, Senior Fellow, Information Economy Project and Professor, Federico Santa María Technical University, Santiago, Chile.

Economic analysis of spectrum policy focuses on government revenues derived via competitive bidding for licenses. Auctions generating high bids are identified as “successful” and those with lower receipts as “fiascoes.” Yet spectrum policies that create rents impose social costs. Most obviously, rules favoring monopoly predictably increase license values but reduce welfare. This article attempts to shift analytical focus to efficiency in output markets. In performance metrics derived by comparing 28 mobile telephone markets, countries allocating greater bandwidth to licensed operators and achieving more competitive market structures are estimated to realize efficiencies that generally dominate those associated with license sales. Policies intended to increase auction receipts (e.g., reserve prices and subsidies for weak bidders) should be evaluated in this light.

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