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Redesigning Spectrum Licenses to Encourage Innovation and Investment

Oct 2017
Working Paper
17-028
By  Paul Milgrom, E. Glen Weyl, Anthony Lee Zhang
Commercial radio spectrum use rights in the US are traditionally assigned using licenses over large geographic areas with 10- or 15-year terms, to encourage infrastructure investment. However, such long-term licenses are difficult to reassign as more valuable uses for spectrum arise. Licenses with shorter term limits over smaller areas expedite reassignment of spectrum to innovative entrants, but provide lower incentives for longterm investment. Recent economic theory suggests that this trade-off between protecting long-term investments and enabling valuable, innovative entry can be muted by a new, more efficient “depreciating” license. A promising application is to priority access in the 3.5GHz band, where thousands of licenses are about to be auctioned. Alternatively, carefully redesigning auction rules may offer similar benefits.