Licences, "Use or Lose" Provisions and the Time of Investment
Cesare Dosi and
Michele Moretto
No 59756, Institutions and Markets Papers from Fondazione Eni Enrico Mattei (FEEM)
Abstract:
Exclusive rights granted by public authorities, like concessions to develop natural resources or electromagnetic spectrum licences, often have option-like features. However, to avoid licences being unused for lengthy periods, regulators sometimes set time limits, after which the exclusive right of exercise may be revoked. In this paper we analyse the impact of use or lose ("UOL") provisions upon the private time of investment. We find that the risk of losing the licence because of inaction generally increases the probability of early investment. However, when capital costs are expected to decline over time, UOL provisions may involve a "perverse effect", by increasing, rather than reducing, the expected time of investment, with respect to a situation where the date of investment is left entirely to the licencee’s discretion.
Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 24
Date: 2010-03
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https://ageconsearch.umn.edu/record/59756/files/NDL2010-024.pdf (application/pdf)
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Working Paper: Licences, "Use or Lose" Provisions and the Time of Investment (2010) 
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemim:59756
DOI: 10.22004/ag.econ.59756
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