Depreciating Licenses

39 Pages Posted: 9 Mar 2016 Last revised: 25 Jan 2018

E. Glen Weyl

Microsoft Research New York City; Princeton University - Julis Rabinowitz Center for Public Policy and Finance

Anthony Lee Zhang

Stanford Graduate School of Business

Date Written: January 24, 2018

Abstract

Appendix is available at: https://ssrn.com/abstract=3034480

Perpetual licenses incent owners incentives to invest in the common value of public resources, but impede efficient reallocation of resources to higher-valued entrants. Short-term licenses improve allocative efficiency but discourage investment. We propose a depreciating license that improves on this tradeoff. Licensees periodically announce valuations at which they commit to sell their licenses, and pay a percent of these valuations as license fees. Depreciating licenses time-stationary investment incentives while encouraging truthful value revelation that improves allocative efficiency. The only tuning parameter, the depreciation rate, can be chosen appropriately by targeting the observed equilibrium frequency of license turnover.

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 (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=2744810 or http://dx.doi.org/10.2139/ssrn.2744810

Eric Glen Weyl (Contact Author)

Microsoft Research New York City ( email )

641 Avenue of the Americas
7th Floor
New York, NY 10011
United States
8579984513 (Phone)

HOME PAGE: http://www.glenweyl.com

Princeton University - Julis Rabinowitz Center for Public Policy and Finance ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Anthony Lee Zhang

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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