In 1989, New Zealand’s Parliament enacted a new statute, the Radiocommunications Act 1989, that explicitly used a system of property rights to regulate the use of the radio spectrum.1 This statute resulted in the first ever spectrum auctions—and New Zealand’s use of auctions has been copied around the globe. New Zealand’s adoption of a property rights regime, a more fundamental change than the introduction of spectrum auctions, has not had the same wide acceptance.2 How did New Zealand’s adoption of a property rights approach to spectrum come to pass? What role did Coase’s 1959 article play in the decision to adopt a property-rights approach and in the design of the property-rights mechanisms? How does the New Zealand system (both in theory and in practice) differ from a naïve application of Coase’s insights? It is my goal in this paper to address these questions. I was on the team that developed most of the system that is embodied in the New Zealand statute, and I participated in some of the drafting sessions for the statute.3 In recounting the background of the New Zealand project, I also have to describe Coase’s influence on my own thinking. Although I conclude that the spectrum rights regime in New Zealand reflects Coase’s insights and, most probably, would not exist without his work, I indulge in some speculation about the benefits of broader and earlier implementation of a property-rights approach to spectrum management.
The Information Economy Project is proud to present articles that will be published in a special joint issue of the Journal of Law & Economics and Journal of Legal Studies, from the Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase held on December 4-5, 2009:
“The Effect of Allowance Allocation” by Robert W. Hahn & Robert N. Stavins. We begin with “The Problem of Social Cost” (1960) … The Coase Theorem: Bilateral negotiation between the generator and recipient of an externality leads to the same efficient outcome regardless of the initial assignment of property rights (if no transaction costs, income effects, or third-party impacts).
“Coase, Transaction Costs, and the Spread of the Rectangular Survey for Land Demarcation within the British Empire” by Gary D. Libecap, Dean Lueck, Trevor O’Grady. This paper examines adoption of the rectangular system (RS) of land demarcation within European settlement colonies of the British Empire in the 18th and 19th centuries. This was a time when agricultural land markets were first developing on a widespread scale. These jurisdictions had similar immigrant populations and legal structures, but their land demarcation practices were quite different.
“Coase and the New Zealand Spectrum Reforms” by Charles L. Jackson. In 1989, New Zealand’s Parliament enacted a new statute, the Radiocommunications Act 1989, that explicitly used a system of property rights to regulate the use of the radio spectrum. This statute resulted in the first ever spectrum auctions – and New Zealand’s use of auctions has been copied around the globe. New Zealand’s adoption of a property rights regime, a more fundamental change than the introduction of spectrum auctions, has not had the same wide acceptance.
“Radio Spectrum and the Disruptive Clarity of Ronald Coase” by Thomas W. Hazlett, David Porter, Vernon Smith. In the Federal Communications Commission,5 Ronald Coase exposed deep foundations via normative argument buttressed by astute historical observation. The government controlled scarce frequencies, issuing sharply limited use rights. Spillovers were said to be otherwise endemic. Coase saw that Government limited conflicts by restricting uses; property owners perform an analogous function via the “price system.” The government solution was inefficient unless the net benefits of the alternative property regime were lower.
“Why the Entry Regulation of the China Mobile Phone Manufacturing Industry Collapsed” by Zhimin Liao, Xiaofang Chen. This case study aims to explore an interesting puzzle: why the license regulation in China’s mobile phone production industry, which generated large rents for an once powerful interest group, was suddenly eliminated.
“How to Keep a Secret: The Decisive Advantage of Corporations” by Robert Cooter. In the 1950s socialists around the world built gigantic steel plants like Nowa Huta in Poland. By the 1980s they were losing vast amounts of money and they seemed destined to die a slow death by rust. Lakshmi Mittal, who led the international operation of an Indian steel business built by his father, believed that these industrial dinosaurs could flourish in the age of mammals.
“Regulatory Institutions and Economic Performance: Wireless Communications in Middle-Income Developing Nations” by Roger Noll. Wireless Success Story: Over 4 billion wireless subscribers worldwide in 2009 (compared to 1.3 billion wire lines) Wireless penetration in developing nations around 50% of population, over 100% in some middle income nations (several higher than US = 90%) 2. Generally good1 policies in nations not noted for good economic policies Mostly privatized Multiple firms (3+ in most nations) Permit foreign ownership Narrow, targeted regulation Licenses transferable.
“Competence as a Random Variable: One More Tribute to Ronald Coase” by Richard A. Epstein. The work of Ronald Coase is notable for how it introduces the notion of transactions costs to explain both the creation and maintenance of firms and for understanding the larger question of social costs. Nonetheless, it seems improbable that positive transaction costs are the only explanation as to why and how firms are organized.
“R.H. Coase and the Neoclassical Model of the Economic System” by Harold Demsetz. It is clear from articles I have written for the New Palgrave Dictionary of Law and Economics and other publications that I have high regard for Coase and his works. Some would say I have published parts of his works more times than has he. True or not, my role in explaining, defending, and extending Ronald’s writings has left me with little to say that is different from what I have already written, so my theme today is not a product of conscious deliberation.
“Measuring Coase’s Influence” by William M. Landes and Sonia Lahr-Pastor. Citations measure a scholar’s influence. That Ronald Coase is among the most influential and best-cited economists in the past fifty years is not debatable. Two of his articles, “The Nature of the Firm”, published in 1937, and “The Problem of Social Cost”, published in 1960, are among the most-cited articles in both economics and law and continue to be widely cited.
“Regulation and the Nature of the Firm: The Case of U.S. Regional Airlines” by Michael E. Levine. The organization of airline networks, and particularly of the interaction between the less dense parts of the network with the more dense parts, is a particularly good example of the operation of two of Professor Coase’s main points in “The Nature of the Firm” and subsequent articles: first, that the choice of institutions chosen to organize production is a function of economic circumstances, including regulation, technology and contractual arrangements inside the firm and second, that there is no general outcome that economic theory predicts, but rather that the result always depends on the particular circumstances and choices available and that it will change as circumstances change.
“Commercial Advertising and the First Amendment” by Geoffrey R. Stone. In his path-breaking 1977 article, Advertising and Free Speech, Ronald Coase challenged the conventional wisdom in an important area of First Amendment law. What especially interested Coase was the sharp divergence between the profound commitment to the free market in the realm of speech and the lack of confidence in the free market in the realm of goods and services. Invoking Justice Holmes’s claim that “the best test of truth is the power of the thought to get itself accepted in the competition of the market,” Coase noted that First Amendment doctrine is largely premised on “an extreme faith in the efficiency of competitive markets and a profound distrust of government regulation.” But in the realm of “goods and services,” the same “intellectual community” that celebrates the marketplace of ideas demands ever-more extensive government regulation. Coase suggested that this disparity “calls for an explanation,” but lamented that such an explanation “is not easy to find.”
“Keynes and Coase” by Richard A. Posner. I am sure that Ronald will not like my bracketing him with Keynes, as I am about to do. But if he is patient, he will hear me modify criticisms of his approach to economics that I made in an essay I wrote many years ago – sixteen to be exact – for the Journal of Economic Perspectives.
The Information Economy Project is proud to present articles that have been published in INFO, Special Issue August 2009, INFO Volume 11, Issue 5 from the Genesis of Unlicensed Wireless Policy: How Spread Spectrum Devices Won Access to License-Exempt Bandwidth Conference held on April 4, 2008:
Unlicensed Wireless Policy Conference: Guest Editorial, by Charles L. Jackson, 5 INFO (August 2009) Unlicensed wireless has become an industry, with hundreds of millions of radios in use today. These devices range from short-range wireless computer keyboards to microwave links with ranges of several miles. Among the most well known are wireless local area networks (WLANs) often referred to as WiFi or 802.11. This special issue of info presents a collection of papers presented at a George Mason University Law School Conference on “The evolution of unlicensed wireless policy: how spread spectrum devices won access to license-exempt bandwidth” on 4 April 2008. The conference, organized by GMU Law School’s Information Economy Project, reviewed the development of unlicensed wireless policy in the US with the goal of assisting scholars in understanding how current unlicensed policies came into being. It looked at the interplay between regulation and innovation and examined policy initiatives from industry and from inside the government. It also reviewed technological and market responses to changes in regulation.
Unlicensed to Kill: A Brief History of the FCC Part 15 Rules, by Kenneth R. Carter, 5 INFO 8-18 (August 2009) The Information Economy Project congratulates Kenneth R. Carter, whose paper from the April 2008 IEP Conference, Unleashing Unlicensed, has been awarded the Best Paper of 2009 by the multi-disciplinary journal, info. Mr. Carter’s paper, “Unlicensed to Kill: A Brief History of the Part 15 Rules,” was published in Volume 11, No. 5 of info, along with the other outstanding articles produced by the scholars and experts who contributed to our highly successful conference at George Mason University, organized by Dr. Charles Jackson. One would think that a paper on history of unlicensed spectrum ought to be a very short. For one, with except for a very minor section of the Federal Communications Commission’s Part 15 rules, there is no such thing as “unlicensed spectrum”. Rather, the FCC’s Part 15 rules permit radio operation on a sufferance basis in broad swaths of the spectrum which is not allocated specifically to unlicensed use. Second, when compared to other communications policies, the history of the unlicensed rules is rather brief. In the five decades between the establishment of the rules in 1938 and their major revision in 1989, the FCC issued only a handful of proceeding on the issue. The commission’s actions on the subject begin to accelerate apace starting in the early 1990s. While the unlicensed rules may lack a glorious and romantic past, licensed operation holds great interest for spectrum policy wonks as well as rich issues for the spectrum policy debate. With increasing intensity over the last decade, proponents and opponents in this debate have held forth unlicensed operation as being either pariah or paradigm. Having participated in this debate numerous conferences and events, it seems to me that following syllogism describes the view of spectrum policy researchers toward unlicensed operation. Namely, that unlicensed operation is for economists akin to what the bumblebee is for aeronautical engineers. As the legend goes, according to aerodynamic theory, the length of the bumble bee’s wings is too short for its body and thus, it is not be able to fly. And, yet it does.
Wi-Fi and Bluetooth: The Path from Carter and Reagan-era Faith in Deregulation to Widespread Products Impacting Our World, by Michael J. Marcus, 5 INFO 19-35 (August 2009) On May 9, 1985 the Federal Communications Commission (FCC), in a meeting that attracted little attention outside the few companies that lobby the agency, adopted a set of rules dealing with the esoteric topic of spread spectrum modulation. But like a seed planted in the ground, these rules resulted in the germination of new classes of products that ultimately had both significant economic impact as well as impact on the daily lives of many people. This decision did not start as an attempt to bring specific products to market, but as part of a program to remove anachronistic technical regulations and allow a free market in innovative technology, subject only to responsible interference limits.
History of Wireless Local Area Networks (WLANs) in the Unlicensed Bands, by Kevin Negus & Al Petrick, 5 INFO 35-56 (August 2009) The wireless local area network (WLAN) is today a ubiquitous device often taken for granted as a default interface for networked devices by users and manufacturers alike. But not very long ago, it was most definitely not so. Rewind the clock ten years back to 1998 and not only are there bitter technical and business consortia differences on WLAN approaches, but there is extreme skepticism and variation in opinion as to how, or even if, WLANs can ever become a mainstream network interface. The WLAN of that day appeared to lack both the throughput of the wired local area network (such as 10/100 Ethernet LAN) and the coverage of the cellular network (which was supposed to be “imminently” upgrading to Mb/s data performance). The WLAN to that point had largely evolved as a slow and unreliable emulation of the wired LAN, only without the wire. And as such the products and standards largely envisioned the end application for WLAN as a replacement for wired LAN in enterprise or campus environments where mobile users would roam with their networked personal computers (PCs).
License-Exempt: The Emergence of Wi-Fi, by Ing Victor Hayes & Ir. Wolter Lemstra, 5 INFO 57-71 (August 2009) In 1985, this development had been triggered by the US Federal Communications Commission (FCC) when it opened the 915 MHz, the 2.4 and 5.8 GHz bands designated for industrial, scientific and medical (ISM) applications for the use by radio systems, under the condition that spread spectrum techniques would be used (FCC, 1985). Interestingly, the 1980 MITRE report that investigated the potential benefits, costs, and risks of spread spectrum communications on behalf of the FCC did not identify a strong requirement or need from the industry to assign radio frequency (RF) spectrum for spread spectrum based applications. The report concludes that spread spectrum technology is inherently more complex and thus more costly (Mitre Corp., 1980).
Grazing on the Commons: The Emergence of Part 15, by Henry Goldberg, 5 INFO 72-75 (August 2009) What follows is a somewhat impressionistic, highly biased account of how unlicensed radio services moved from being a by-product of the ISM bands to a deliberate spectrum allocation, with clearly defined goals and objectives that could be achieved only by not subjecting the spectrum to licensing or auctions. Like sin itself, the deliberate un-licensing of spectrum began with an Apple. In early 1991, Apple Computer was developing the Newton as the first PDA (Apple invented the term) and was pioneering in the laptop segment of the computer market. Apple believed that wireless connectivity was essential to the success of both products. Accordingly, Apple petitioned the FCC to allocate 40 MHz of spectrum – 1,850-1,890 MHz – out of the 1,850-1,990 MHz band being earmarked for new technologies, particularly PCS. Apple called its proposed new radio service Data-PCS and proposed that it would be devoted exclusively to local area, high speed data communications to support collaborative computing and spontaneous networking among laptops and PDAs. Data-PCS would, in the words of the petition…
Unleashing Innovation: Making the FCC User-Friendly, by Stephen J. Lukasik, 5 INFO 76-85 (August 2009) There is a large literature on the issue of regulation and technological innovation from the varied perspectives of history, politics, economics, law, finance, and engineering. To attempt to add something meaningful to this rich body of writings is challenging. My only qualification is that of a participant for a short but critical period. When I found myself, on May 1, 1979, the Chief Scientist of the Federal Communications Commission, twenty-three years after receiving my doctorate from MIT, my training said to decide what the most important problems were that needed fixing and to proceed by whatever promising means suggested themselves to fix them. My technical background was eclectic, the result of broad interests and perhaps a bit of impatience, but quite devoid of experience with the theory or practice of regulation. To understand what happened next on the technology and communication policy side of the FCC, it may be useful to look further into my improbable presence.
Has “Unlicensed” in Part 15 Worked? A Case Study, by Tim Pozar, 5 INFO 86-91 (August 2009) The Federal Communications Commission established the provisions for unlicensed operations of intentional radiators or transmitters for commutations in what was called the industrial scientific and medical bands. This was a significant change in mindset for the FCC and this case study is meant to show an example of how unlicensed devices have contributed to the community “good”. The internet became a major economic entity and an essential tool for commerce in the mid to late 1990s. With that, the digital divide was identified as a significant issue by 1996. Typically the digital divide has been the result of cost of the equipment to use the internet, such as computers, as well as the cost or lack of access in connecting to the Internet. Many efforts by local community groups and governments have been made to attack the issue but one problem that they all encountered was addressing the “last mile” to connect the disenfranchised.
Special Issue August 2009, INFO Volume 11, Issue 5. Charles L. Jackson, Adjunct Professor of Electrical Engineering, George Washington University.
Unlicensed wireless has become an industry, with hundreds of millions of radios in use today. These devices range from short-range wireless computer keyboards to microwave links with ranges of several miles. Among the most well known are wireless local area networks (WLANs) often referred to as WiFi or 802.11. This special issue of info presents a collection of papers presented at a George Mason University Law School Conference on “The evolution of unlicensed wireless policy: how spread spectrum devices won access to license-exempt bandwidth” on 4 April 2008. The conference, organized by GMU Law School’s Information Economy Project, reviewed the development of unlicensed wireless policy in the US with the goal of assisting scholars in understanding how current unlicensed policies came into being. It looked at the interplay between regulation and innovation and examined policy initiatives from industry and from inside the government. It also reviewed technological and market responses to changes in regulation.