Spectrum, Scarcity, and Centralized Control

by on September 5, 2006 · 28 comments

I was generally impressed with Tim Wu’s paper on Hayekian analysis of intellectual property, but I did want to note one place where his analysis goes off the rails:

A second example is broadcast spectrum reform, which has been under consideration for about a decade in the United States. The question is whether broadcasting at certain frequencies should be propertized. In other words, the question is whether some firm should own the alienable rights to broadcast between frequencies X and Y. The impact of the government’s decision whether to grant property rights or not will have important decisional consequences. Granting no rights will create decentralized market entry for spectrum-dependent projects or technologies. Any entity willing to make the investment may develop a project that depends on access to spectrum, albeit at the cost of many failed projects. Granting government-specified licenses or property rights, conversely, makes some kind of hierarchical decision structure possible in the first place. That is, we should expect to see greater screening of spectrum-dependent projects or technologies before they are launched.

Which is better is slightly ambigious. For some uses of spectrum there may be good arguments for a hierarchical, centralized authority who decides what the spectrum will be used for, perhaps to ensure public safety. But otherwise, whether we want propertized spectrum depends on whether there is any argument that spectrum-dependent projects be carefully screened. Absent risk the public, the answer must sometimes be no.

This strikes me as rather misguided. As Jerry has explained in this space before, the difference between spectrum and ideas is that spectrum is rivalrous and scarce, whereas ideas are not. Complete decontrol is never an option–somebody has to pick the rules governing how the resource will be consumed, and the only question is who will make the rules.

So it’s nonsense to claim that only propertized spectrum is subject to a “hierarchical decision structure.” Unlicensed spectrum is subject to the “hierarchical decision structure” of the FCC, which makes various rules about how unlicensed spectrum may be used. So far, most unlicensed spectrum has been subject to limits on the power of transmitters, making unlicensed spectrum extremely useful for short-range transmission technologies like WiFi and cordless phones, but not especially useful for longer-range applications. Conceivably, the government could establish different, more complex rules for other unlicensed spectrum, thereby enabling certain long-range applications to operate in an unlicensed environment.

But if that’s the policy that Wu is proposing, then our choice is not between “hierarchical decisions” made by private companies and decentralization. The choice is simply a matter of who the hierarchical decision maker will be: a private company or the state?

Now, I do think there’s something to be said for having some portion of the spectrum set aside for low-power usage, as has been done for the band used by WiFi. It may be that there are many low-power uses that are not individually lucrative enough to be worth anyone’s trouble to obtain a license, but that collectively are quite valuable. In particular, wouldn’t want to propertize the bands already dedicated to low-power uses like WiFi, which have proven extremely useful.

But this doesn’t work so well for higher-powered transmissions. Hence, the primary reason for advocating that “spectrum-dependent projects be carefully screened” isn’t public safety, it’s interference among uses. There can only be so many transmitters using a particular band, at a particular power level for a particular purpose. Barring a major technological breakthrough, there will be more demand for spectrum than supply for the foreseeable future. Someone is going to have to decide among competing uses. For a variety of reasons that Jerry ably lays out here, the best way for society to make that decision is through the price mechanism. When it comes to scarce, rivalrous resources, a “commons” is just another word for keeping the government in charge.

There’s an interesting symmetry here. Many policy analysts on the right are so used to defending property rights and markets that they go overboard advocating the propertization of everything in sight, including non-scarce intellectual products (such as software patents) that might be better left in the public domain. The left, in contrast, is so infatuated with their responses to this overreach by the right that they go too far in the opposite direction, wrongly asserting that we can dispense with market mechanisms not only for non-scarce ideas, for scarce resources like spectrum too. Both are making the same fundamental error by failing to appreciate the fundamental difference between rivalrous and non-rivalrous resources. Property rights are essential to ensuring the efficient allocation of the former among competing uses. In contrast, property rights in the latter are at best a necessary evil, because the most efficient use of a non-rivalrous resource is to make it as widely available as possible.

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