Depreciating Licenses

61 Pages Posted: 13 Nov 2020 Last revised: 28 Apr 2021

See all articles by E. Glen Weyl

E. Glen Weyl

Microsoft ; RadicalxChange Foundation

Anthony Lee Zhang

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2021

Abstract

Many governments assign use licenses for natural resources, such as radio spectrum, fishing rights, and mineral extraction rights, through auctions or other market-like mechanisms. License design affects resource users' investment incentives, as well as the efficiency of asset allocation. No existing license design achieves first-best outcomes on both dimensions. Long-term licenses have high-investment incentives, but impede reallocation to high-valued entrants. Short-term licenses improve allocative efficiency but discourage investment. We propose a simple new mechanism, the depreciating license, and we argue that it navigates this tradeoff more effectively than existing license designs.

Keywords: depreciating license, property rights, investment, misallocation

JEL Classification: D44, D61, K11, Q28, Q58

Suggested Citation

Weyl, Eric Glen and Zhang, Anthony Lee, Depreciating Licenses (April 28, 2021). Available at SSRN: https://ssrn.com/abstract=3698941 or http://dx.doi.org/10.2139/ssrn.3698941

Eric Glen Weyl

Microsoft ( email )

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RadicalxChange Foundation ( email )

HOME PAGE: http://www.radicalxchange.org

Anthony Lee Zhang (Contact Author)

University of Chicago - Booth School of Business ( email )

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