Comments of 71 Concerned Economists: Using Procurement Auctions to Allocate Broadband Stimulus Grants

16 Pages Posted: 15 Apr 2009 Last revised: 8 Jun 2014

See all articles by William J. Baumol

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies; Leonard N. Stern School of Business - Department of Economics

Kenneth J. Arrow

Stanford University - Department of Economics

Susan Athey

Stanford Graduate School of Business

Jonathan B. Baker

American University - Washington College of Law

Coleman Bazelon

The Brattle Group

Tim Brennan

University of Maryland, Baltimore County - Department of Public Policy; Resources for the Future

Timothy Bresnahan

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

Yeon-Koo Che

Columbia University

Peter Cramton

University of Maryland - Department of Economics

Daniel A. Ackerberg

University of California, Los Angeles (UCLA) - Department of Economics

James Alleman

University of Colorado at Boulder - College of Engineering and Applied Science

Gregory S. Crawford

University of Zurich - Department of Economics

Peter M. DeMarzo

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Gerald R. Faulhaber

University of Pennsylvania - Wharton School

Jeremy T. Fox

University of Michigan

Ian L. Gale

Georgetown University - Department of Economics

Jacob K. Goeree

University of Zurich

Brent D. Goldfarb

University of Maryland - Robert H. Smith School of Business

Shane M. Greenstein

Harvard University - Technology & Operations Management Unit; National Bureau of Economic Research (NBER)

Robert W. Hahn

University of Oxford, Smith School; Georgetown University

Robert E. Hall

Hoover Institution and Department of Economics, Stanford University; National Bureau of Economic Research (NBER)

Ward Hanson

affiliation not provided to SSRN

Barry Harris

affiliation not provided to SSRN

Robert G. Harris

University of California, Berkeley - Business & Public Policy Group

Janice Alane Hauge

University of North Texas

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Thomas W. Hazlett

Clemson University

Kenneth Hendricks

University of Texas at Austin - Department of Economics

Heather Hudson

affiliation not provided to SSRN

Mark A Jamison

University of Florida - Warrington College of Business Administration, Public Utility Research Center

John H. Kagel

Ohio State University (OSU) - Economics

Alfred E. Kahn

National Economic Research Associates Inc. (NERA) (Deceased)

Ilan Kremer

Independent

Vijay Krishna

Penn State University

William Lehr

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Thomas M. Lenard

Technology Policy Institute

Jonathan Levin

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Yuanchuan Lien

Hong Kong University of Science & Technology (HKUST)

John W. Mayo

Georgetown University - Department of Strategy/Economics/Ethics/Public Policy

David McAdams

Massachusetts Institute of Technology (MIT) - Economics, Finance, Accounting (EFA)

Paul R. Milgrom

Stanford University

Roger G. Noll

Stanford University - Department of Economics

Bruce M. Owen

Stanford University

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences

Robert H. Porter

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Philip Reny

University of Chicago - Department of Economics

Michael H. Riordan

Columbia University - Columbia Business School

David J. Salant

Toulouse School of Economics; Columbia University - Columbia Institute for Tele Information; Center for Research in Wireless Communications

Scott Savage

University of Colorado at Boulder - Department of Economics

William F. Samuelson

Boston University - Department of Finance & Economics; National Bureau of Economic Research (NBER)

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Marius Schwartz

Georgetown University

Andrzej Skrzypacz

Stanford University - Stanford Graduate School of Business

Vernon L. Smith

Chapman University - Economic Science Institute; Chapman University School of Law

Daniel R. Vincent

University of Maryland - Department of Economics

Joel Waldfogel

University of Minnesota - Twin Cities - Carlson School of Management; National Bureau of Economic Research (NBER); University of Minnesota - Twin Cities - Department of Economics

Scott Wallsten

Technology Policy Institute

Robert J. Weber

Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS)

Bradley S. Wimmer

University of Nevada, Las Vegas - College of Business - Department of Economics

Glenn Woroch

University of California, Berkeley; Compass Lexecon; Georgetown Center for Business & Public Policy

Lixin Ye

Ohio State University (OSU) - Economics

John Hayes

Charles River Associates (CRA)

Gregory L. Rosston

Stanford Institute for Economic Policy Research

Date Written: April 13, 2009

Abstract

The signatories to this document are economists who have studied telecommunications, auctions, and competition policy. While we may disagree about the stimulus package, we believe that it is important to implement mechanisms that make stimulus spending as efficient as possible. To that end, we have come together to encourage the National Telecommunications Information Agency (NTIA) and Rural Utilities Service (RUS) to adopt auction mechanisms to allocate broadband stimulus grants.

The broadband stimulus NOI asks which mechanisms NTIA and RUS should use to distribute grants and how those mechanisms address shortcomings in traditional grant and loan programs. In this note we explain why procurement auctions are more efficient and more consistent with the stimulus goals of allocating funds quickly than a traditional grant review process. We recommend that NTIA/RUS use procurement auctions to distribute at least part of the stimulus funds.

The American Recovery and Reinvestment Act (ARRA) requires NTIA/RUS to distribute $7.2 billion in broadband subsidies. The broadband component of the Act has dual, and not entirely consistent, objectives of providing immediate economic stimulus and improving broadband service. NTIA/RUS faces a formidable challenge in determining how to spend the money quickly and efficiently in ways that meet these goals. The traditional grant application process is long, complicated, and involves subjective and arbitrary decisions regarding which projects to fund. In other words, requesting and reviewing grant applications is not an effective way to implement the plan.

Procurement auctions, in contrast, provide a mechanism that can allocate grant money quickly, efficiently, and according to well-defined rules. As a result, procurement auctions offer NTIA/RUS the most promising method of maximizing broadband improvement while also creating some level of “temporary, timely, and targeted” stimulus. We therefore strongly recommend that NTIA/RUS adopt procurement auctions as its preferred method of distributing grants.

This memo has three parts. First, it explains why the traditional grant application process is unsuitable for this task and why procurement auctions are better suited. Second, it sketches out a procurement auction plan. This plan is intended to be a starting point from which auction design experts would proceed to build and implement a fully functional auction. Finally, we explain that even if policymakers are skeptical of procurement auctions, one could be implemented quickly as part of an initial tranche of stimulus funding in order to test its efficacy relative to traditional approaches. This approach would allow NTIA/RUS to quickly expand upon or modify the procurement auction program in subsequent funding rounds.

Suggested Citation

Baumol, William J. and Arrow, Kenneth J. and Carleton Athey, Susan and Baker, Jonathan B. and Bazelon, Coleman and Brennan, Tim and Bresnahan, Timothy F. and Bulow, Jeremy I. and Che, Yeon-Koo and Cramton, Peter C. and Ackerberg, Daniel A. and Alleman, James H. and Crawford, Gregory S. and DeMarzo, Peter M. and Faulhaber, Gerald R. and Fox, Jeremy T. and Gale, Ian L. and Goeree, Jacob K. and Goldfarb, Brent D. and Greenstein, Shane M. and Hahn, Robert W. and Hall, Robert E. and Hanson, Ward and Harris, Barry and Harris, Robert G. and Hauge, Janice Alane and Hausman, Jerry A. and Hazlett, Thomas W. and Hendricks, Kenneth and Hudson, Heather and Jamison, Mark A. and Kagel, John H. and Kahn, Alfred E. and Kremer, Ilan and Krishna, Vijay and Lehr, William and Lenard, Thomas M. and Levin, Jonathan D. and Lien, Yuan-Chuan and Mayo, John W. and McAdams, David and Milgrom, Paul R. and Noll, Roger G. and Owen, Bruce M. and Plott, Charles R. and Porter, Robert H. and Reny, Philip and Riordan, Michael H. and Salant, David J. and Savage, Scott and Samuelson, William F. and Schmalensee, Richard and Schwartz, Marius and Skrzypacz, Andrzej and Smith, Vernon L. and Vincent, Daniel R. and Waldfogel, Joel and Wallsten, Scott and Weber, Robert J. and Wimmer, Bradley S. and Woroch, Glenn and Ye, Lixin and Hayes, John and Rosston, Gregory L., Comments of 71 Concerned Economists: Using Procurement Auctions to Allocate Broadband Stimulus Grants (April 13, 2009). Available at SSRN: https://ssrn.com/abstract=1377523 or http://dx.doi.org/10.2139/ssrn.1377523

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies ( email )

New York, NY
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Leonard N. Stern School of Business - Department of Economics

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Kenneth J. Arrow

Stanford University - Department of Economics ( email )

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Susan Carleton Athey

Stanford Graduate School of Business ( email )

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Jonathan B. Baker

American University - Washington College of Law ( email )

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Coleman Bazelon

The Brattle Group ( email )

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University of Maryland, Baltimore County - Department of Public Policy ( email )

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Yeon-Koo Che

Columbia University ( email )

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University of Maryland - Department of Economics ( email )

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University of Colorado at Boulder - College of Engineering and Applied Science ( email )

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Georgetown University - Department of Economics ( email )

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University of Zurich ( email )

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Harvard University - Technology & Operations Management Unit ( email )

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Robert W. Hahn

University of Oxford, Smith School ( email )

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Georgetown University

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Robert E. Hall

Hoover Institution and Department of Economics, Stanford University ( email )

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University of California, Berkeley - Business & Public Policy Group ( email )

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University of North Texas ( email )

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National Economic Research Associates Inc. (NERA) (Deceased)

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Penn State University ( email )

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Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL) ( email )

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