Licences, 'Use or Lose' Provisions and the Time of Investment

28 Pages Posted: 9 Apr 2010

See all articles by Cesare Dosi

Cesare Dosi

University of Padua - Department of Economics; CRIEP - Centro Universitario di Ricerca sull’Economia Pubblica

Michele Moretto

University of Padua, Dep of Economics and Management

Date Written: March 19, 2010

Abstract

Exclusive rights, like mineral leases and radio spectrum licences, often hold option-like features. This occurs when licencees do not face the obligation to to develop the lease or to undertake the investment required to use the assigned spectrum. However, to avoid licences being unused for lengthy periods, regulators sometimes set time limits, after which the exclusive right of exercise may be revoked, prior to its term, because of inaction. This paper looks at the potential impact of "use or lose" provisions upon the private time of investment. We find that these provisions may either increase or reduce the probability of early investment, depending on the risk of losing the licence and the expectations about on-going deployment costs.

Keywords: Licences, Real Options, Use or Lose Provisions, Time of Investment

JEL Classification: L51, D44, D92

Suggested Citation

Dosi, Cesare and Moretto, Michele, Licences, 'Use or Lose' Provisions and the Time of Investment (March 19, 2010). FEEM Working Paper No. 24.2010. Available at SSRN: https://ssrn.com/abstract=1574930 or http://dx.doi.org/10.2139/ssrn.1574930

Cesare Dosi (Contact Author)

University of Padua - Department of Economics; CRIEP - Centro Universitario di Ricerca sull’Economia Pubblica ( email )

via Del Santo 33
Padova, 35123
Italy
049+8274049 (Phone)
049+8274221 (Fax)

Michele Moretto

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

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