39 Pages Posted: 9 Mar 2016 Last revised: 25 Jan 2018
Date Written: January 24, 2018
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: Suggested Citation