SPECTRUM MANAGEMENT: PROPERTY RIGHTS, *GOSPLAN,* MARKETS, AND THE
COMMONS

Gerald R. Faulhaber and David Farber[^1]

# Abstract

Since 1927, the electromagnetic spectrum has been allocated to uses and
users by the Federal government, covering broadcast radio, microwave
communications systems, broadcast television, satellites, dispatch,
police and national defense needs, among many others. Assignees receive
a license to broadcast certain material (say, taxi dispatch) at a
specified frequency and a specified power level (and perhaps direction).
For many purposes, this license is time-limited, but with a presumption
of renewal; in fact, radio licenses are almost always renewed. Licensees
can only use the spectrum for the specified purpose and may not sell or
lease it to others. The current system is similar to that of the former
Soviet Union's GOSPLAN agency, which allocated scarce resources by
administrative fiat among factories and other producers in the Soviet
economy.

Economists since Ronald Coase (1959) have argued strongly and
persuasively that allocating a scarce resource by administrative fiat
leads to gross inefficiencies in the use of that resource; establishing
a market for spectrum, in which owners could buy, sell, subdivide and
aggregate spectrum parcels would lead to a much more efficient
allocation of spectrum. But only in the last ten years has the Federal
Communications Commission (FCC) received authorization from Congress to
conduct auctions, and only for the 180 Mhz of spectrum used in wireless
(cellular) communications and without resale to others.

Meanwhile, substantial strides have been made in radio technology,
including ultra-wideband (UWB) and software-defined radio (SDR), or
"agile" radio. The developers of these technologies note that the
products based on these technologies undermine the current system of
administrative allocation of exclusive-use licenses, and call for an
"open range," or commons, approach to the spectrum that would do away
with exclusive use. "Removing the fences," in this view, will lead to
more efficient use of the spectrum.

While both economists and radio engineers believe the present system of
spectrum allocation is inefficient and wasteful, they appear to have
diametrically opposed views of what should replace it. Economists seek
to unleash the power of the market to achieve efficient outcomes;
engineers seek to unleash the power of the commons to achieve efficient
outcomes. Which is right?

We argue in this paper that this is a false dichotomy, based on a
misunderstanding by economists of the new radio technologies and a
misunderstanding by engineers of the flexibility of property rights and
markets. We show that there are several property rights regimes that can
simultaneously support both markets and the rapid diffusion of the new
radio technologies, leading to a far more efficient allocation of this
important national resource.

[^1]: ^\*^ Professor of Business and Public Policy, Wharton School,
    University of Pennsylvania, and former Chief Economist of the
    Federal Communications Commission (2000-01); Professor of Computer
    Science, University of Pennsylvania, and former Chief Technologist,
    Federal Communications Commission (2000-01). The authors are
    co-directors of the Penn Initiative for Markets, Technology and
    Policy at the University of Pennsylvania. The ideas expressed in
    this paper do not represent the Federal Communications Commission,
    the University of Pennsylvania, or any known institution other than
    the authors.