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Coase actually argues in that paper, in true UChicago fashion that the spectrum should be completely unregulated in a free market for private efficiency. He’s a

• wahern 7y ago
  Yes. But the explicit premise in that section is that there are exclusionary property rights in the spectrum protected by traditional property and contract law, and that contiguous ranges of spectrum can be subdivided and sold exactly analogously to a piece of land. For example, he explains that while there are technical interference issues at the edges of spectrum bands whereby the user of one range could incidentally interfere with the user of another range, the same type of problems occurs with land (e.g. nuisance) and are similarly manageable with a traditional property rights regime. In Coase's view the government shouldn't be auctioning spectrum for limited times or with strings attached, as we commonly do now. (What the FCC does now is a quasi-Coasean spectrum regime.) In Coase's view spectrum usage would be most efficient by selling all spectrum (from 0-infinity) in a one-time auction to the single highest bidder. That bidder could (and, crucially, would in Coase's view) then subdivide and sell the spectrum according to market demand. Coase's logic is solid; it's the premises that are problematic. First, it ignores transaction costs, or at least assumes they're de minimis. Even before the Law & Economics field took off (which is the field Coase most influenced), it was understood that one of the purposes of legal rules was to minimize transaction costs. Sometimes a market is made more efficient by specifying a fixed rule, and even more often by specifying a fixed default rule, then by permitting perfect contractual freedom. Of course, this begs the question of when you can know whether to intervene. But that's the only legitimate question, not whether you should ever intervene. In Coase's time his argument was more practical as widespread independent and even individual broadcast usage wasn't a commercially realistic scenario; transaction costs would always be born by economic behemonths and therefore would be de minimis relative to their price. But that's not Coase's actual argument; his actual argument is categorical and absolute, and that's how most modern proponents (IME) apply it as well. Secondly, the notion of spectrum rivalrousness is contentious. If something isn't rivalrous, a property regime is unnecessary and usually strictly inefficient.[1] Without getting into the science (and I'm not an electrical engineer so I'd just make mince of things), as a practical matter spectrum usage is only partly rivalrous (rivalrous mostly deriving from the technical environment, not from the fundamental character of spectrum, as with physical goods and real estate). Your ability to enjoy maximal channel bandwidth between two physical points is limited by how sophisticated your transmitter and receiver, and ultimately by computational power, not by coincidental usage, per se. (Not unless someone is actively trying to screw you.) As WiFi has born out, we're all in an arms race for buying and using the latest, greatest gear. In one sense this is just a convoluted price signaling scheme--the people most in need of bandwidth just pay for fancier equipment--that might be less efficient than a simple property regime. But arguably in practice this process plays out slowly enough (especially with moderate power limits, carve outs for emergency use, etc) that these transaction costs are far less than the transaction costs we see in a market where we expect Verizon's or AT&T's spectrum usage rights to trickle down to ad hoc groups and individuals of spectrum users in the same way William the Conqueror's lands in England were slowly subdivided until every Englishman could build his own castle. Nobody will ever sell me rights to spectrum for use within a 10-meter or even 100-meter radius, even though it's possible and would open up a tremendous wealth of opportunities. Cordless phones (POTS, not cell) and WiFi could only have happened with unlicensed (i.e. unowned) spectrum, in contradiction to Coase's argument. [1] Exception--if food wasn't rivalrous because we all had free Star Trek-style replicators I imagine obesity would be an even worse problem than it is today, we'd be more sickly, and so we'd probably want to impose costs to maximize aggregate wealth. (See soda tax.) And if we did that we might want to make those costs transferable (e.g. carbon credits) rather than centrally figuring out the most efficient price for each individual.
  • ethn 7y ago
    That’s a mistaken view. Coase argues precisely that the market would self-regulate by broadcasters determining the spectrum interferences with each other and drafting financial agreements to ameliorate those interferences. Not by having an initial legal monopoly, which was abhorrent to the Chicago School. He believes that the natural institution of private property in the sense of contract through the traditional court system is enough of a regulation and no special regulation (e.g. FCC) is needed. Section 5 sophisticatedly exposits the specific case on how the free market solves frequency interference in admonishment of the special regulation. Excerpts of his discourse: “All property rights interfere with the ability of people to use resources.What has to be insured is that the gain from interference more than offsets the harm it produces. There is no reason to suppose that the optimum situation is one in which there is no interference” “The operator whose signals were interfered with, if he had the right to stop such interference,would be willing to forego this right if he were paid more than the amount by which the value of his service was decreased by this interference or the costs which he would have to incur to offset it.” He goes on to talk about the case of deliberate interference. This is about deliberate spectrum preference overlap not accidental interference. And Coase disambiguates his advocation if it still isn’t clear: “What this analysis demonstrates,so far as the radio industry is concerned, is that there is no analytical difference between the problem of interference between operators on a single frequency and that of interference between operators on adjacent frequencies.” “It has been the burden of this article to show that the problems posed by the broadcasting industry do not call for any fundamental changes in the legal and economic arrangements which serve other industries.” You’re mistaking market efficiency, transactional costs and externality. It’s argued that legal rules are necessary to instead reduce externalities by market failures, which existed long before Coase. Coase instead contributed to the limits of cost savings about transaction costs provided by the formation of business and maintenance of markets in The Nature of the Firm (aside from his free market advocation of the spectrum), which became Coase’s theorem. I’m educated as an Electrical Engineer; it’s clear to us spectrum rivalry isn’t contentious but true. Even amongst a single broadcaster within his own spectrum he runs into constant constraint and trade off by his own bandwidth. I’m not arguing for or against the ideas of Coase, only correcting that public presentation of his ideas as an interventionist. Especially since Coase didn’t think externalities were unfortunate, instead he thought that was a “dirty word”, and seldom found a case for a government all to eager to specially regulate.