Download this Paper Open PDF in Browser

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

Abstract

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.

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

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: https://ssrn.com/abstract=2744810

Eric Weyl (Contact Author)

Microsoft Research ( email )

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

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

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

Paper statistics

Downloads
956
Rank
19,048
Abstract Views
4,559