Spectrum Flash Dance: Eli Noam's Proposal for "Open Access" to Radio Waves

As Ronald Coase posited in his famous article on the nature of the firm, there are situations in which decentralized markets are relatively efficient for coordinating economic activity, and situations in which they are not. With spectrum access, assigning property rights to clearly specified private owners is the socially efficient policy because the relevant transaction efficiencies will be internalized by competitive "spectrum owners" selecting to what degree rights should be subdivided and in what manner marketed. Where spot markets are optimal, an owner will maximize profits by using them; where long-term contracts are efficient, the owner will enter profitably into them. Hence, Eli Noam's solution--imposing open-access rules on bands of radio frequencies by government mandate--is a mistaken attempt to duplicate the efficiencies of markets by mandating a particular subset of market solutions. Such a policy predictably will result in underutilization of the spectrum resource. Copyright 1998 by the University of Chicago.