Depreciating Licenses

E. Glen Weyl and Anthony Lee Zhang

American Economic Journal: Economic Policy, 2022, vol. 14, issue 3, 422-48

Abstract: Many governments assign use licenses for natural resources, such as radio spectrum, fishing rights, and mineral extraction rights, through auctions or other market-like mechanisms. License design affects resource users' investment incentives as well as the efficiency of asset allocation. No existing license design achieves first-best outcomes on both dimensions. Long-term licenses give owners high investment incentives but impede reallocation to high-valued entrants. Short-term licenses improve allocative efficiency but discourage investment. We propose a simple new mechanism, the depreciating license, and we argue that it navigates this trade-off more effectively than existing license designs.

JEL-codes: D44 D45 H82 K11 Q28 Q38 Q58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/pol.20200426

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