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Depreciating Licenses

39 Pages Posted: 9 Mar 2016 Last revised: 12 Sep 2017

E. Glen Weyl

Microsoft Research; Yale University

Anthony Lee Zhang

Stanford Graduate School of Business

Date Written: September 8, 2017


Long-term or perpetual licenses give their owners incentives to invest in and maintain the common value of public resources, but may impede reallocation of resources to innovative entrants. Short-term licenses improve allocative efficiency at the cost of investment incentives. We propose depreciating licenses, a system that navigates the allocative-investment tradeoff more efficiently. Licensees annually announce valuations at which they commit to sell their licenses, and pay a percent of these valuations as license fees. Depreciating licenses induce high and time-stationary investment incentives. The self-assessed license fee encourages value revelation and improves allocative efficiency. The only tuning parameter, the depreciation rate, can be chosen appropriately by targeting the observed probability of license turnover.

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Keywords: depreciating license, property rights, investment, misallocation, monopoly

JEL Classification: B51, C78, D42, D61, D82, K11

Suggested Citation

Weyl, E. Glen and Zhang, Anthony Lee, Depreciating Licenses (September 8, 2017). Available at SSRN:

Eric Weyl (Contact Author)

Microsoft Research ( email )

One Memorial Drive
Cambridge, MA 02142
United States
(857) 998-4513 (Phone)


Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Anthony Lee Zhang

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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