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Radio Spectrum and the Disruptive Clarity OF Ronald Coase

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  • Thomas W. Hazlett

    () (School of Law, George Mason University)

  • David Porter

    () (Economic Science Institute, Chapman University)

  • Vernon L. Smith

    (Economic Science Institute, Chapman University)

Abstract

In the Federal Communications Commission, Ronald Coase (1959) 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. Coase augured that the price system would outperform the administrative allocation system. His spectrum auction proposal was mocked by communications policy experts, opposed by industry interests, and ridiculed by policy makers. Hence, it took until July 25, 1994 for FCC license sales to commence. Today, some 73 U.S. auctions have been held, 27,484 licenses sold, and $52.6 billion paid. The reform is a textbook example of economic policy success. We examine Coase‘s seminal 1959 paper on two levels. First, we note the importance of its analytical symmetry, comparing administrative to market mechanisms under the assumption of positive transaction costs. This fundamental insight has had enormous influence within the economics profession, yet is often lost in current analyses. This analytical insight had its beginning in his acclaimed early article on the firm (Coase 1937), and continued into his subsequent treatment of social cost (Coase 1960). Second, we investigate why spectrum policies have stopped well short of the property rights regime that Coase advocated, considering rent-seeking dynamics and the emergence of new theories challenging Coase‘s property framework. One conclusion is easily rendered: competitive bidding is now the default tool in wireless license awards. By rule of thumb, about $17 billion in U.S. welfare losses have been averted. Not bad for the first 50 years of this, or any, Article appearing in Volume II of the Journal of Law & Economics.

Suggested Citation

  • Thomas W. Hazlett & David Porter & Vernon L. Smith, 2009. "Radio Spectrum and the Disruptive Clarity OF Ronald Coase," Working Papers 09-11, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:09-11
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    File URL: http://www.chapman.edu/ESI/wp/Porter-Smith-Hazlett-RadioSpectrum.pdf
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    References listed on IDEAS

    as
    1. Isaac, R. Mark & Salmon, Timothy C. & Zillante, Arthur, 2007. "A theory of jump bidding in ascending auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 62(1), pages 144-164, January.
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    7. Minasian, Jora R, 1975. "Property Rights in Radiation: An Alternative Approach to Radio Frequency Allocation," Journal of Law and Economics, University of Chicago Press, vol. 18(1), pages 221-272, April.
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    9. Hazlett Thomas W. & Spitzer Matthew L., 2000. "Digital Television and the Quid Pro Quo," Business and Politics, De Gruyter, vol. 2(2), pages 1-46, August.
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    Cited by:

    1. Hahn Robert & Passell Peter, 2013. "Spectrum Policy and the Evolution of the Wireless Internet: Some Thoughts on Where Economists Agree and Disagree," The Economists' Voice, De Gruyter, vol. 10(1), pages 29-37, December.
    2. Thomas Hazlett, 2014. "The Rationality of U.S. Regulation of the Broadcast Spectrum in the 1934 Communications Act," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(3), pages 203-220, November.
    3. Thomas W. Merrill & Henry E. Smith, 2011. "Making Coasean Property More Coasean," Journal of Law and Economics, University of Chicago Press, vol. 54(S4), pages 77-104.
    4. Mary M. Shirley, 2016. "Ronald Coase: the makings of an iconoclast," Chapters,in: The Elgar Companion to Ronald H. Coase, chapter 1, pages 7-17 Edward Elgar Publishing.

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