61 Pages Posted: 13 Nov 2020 Last revised: 28 Apr 2021
Date Written: April 28, 2021
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: Suggested Citation