BIOGRAPHIES
William J. Baumol is Professor of Economics at New York University, and Professor Emeritus and Senior Research Economist at Princeton University. He received his BSS at the College of the City of New York in 1942 and his Ph.D. at the University of London in 1949. His honors and awards include ten honorary degrees, presidency of the American Economic Association, the Association of Environmental and Resource Economists, the Eastern Economic Association, and the Atlantic Economic Society, and membership in the National Academy of Sciences. He has also served on many boards and committees. Dr. Baumol is the author of numerous books and over 500 articles published in professional journals. His relatively recent books include: The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism; Economics: Principles and Policy, 9th edition (with Alan S. Blinder); and, Downsizing in America (with Alan S. Blinder and Edward N. Wolff).
Gerald R. Faulhaber is Professor of Business and Public Policy and Management at the Wharton School of the University of Pennsylvania. He served as Chief Economist at the Federal Communications Commission from July 1, 2000 to June 30, 2001, where he worked on many telecommunications and Internet issues, including the AOL-Time Warner merger. Professor Faulhaber's current research is in the area of public policy and broadband infrastructure for the Internet, and the political economy of regulation. He has published widely in professional journals, and is the author of several books, including European Economic Integration: Technological Perspectives and Telecommunications in Turmoil: Technology and Public Policy. He has held research and lecture appointments in Spain, France, and China and served on numerous scholarly boards and review committees. He was an Associate Editor of the Journal of Industrial Economics, and serves on the Board of Editors of Information Economics and Policy. He has served on the National Research Council’s Committee for the Study on Issues in the Transborder Flow of Data. He was the founding director of Wharton's Fishman-Davidson Center for the Study of the Service Sector, from 1984 to 1989. Prior to his academic career, Professor Faulhaber was Director of Strategic Planning and Financial Management at AT&T, after holding the position of Head, Economics Research at Bell Laboratories.
Ellen P. Goodman is Associate Professor of Law at Rutgers University Law School at Camden. She is also Of Counsel in the telecommunications and information technology practices at Covington & Burling and was a partner at the firm from 2000-2002. Professor Goodman teaches media and intellectual property law. Her current research is in the area of spectrum and media policy, with respect to which she has published in leading technology law journals. She has advised companies about the law and policy related to digital television, media concentration, broadband infrastructure, and intellectual property, and has undertaken trial and appellate court litigation concerning communications rules and statutes. Professor Goodman’s publications include, Media Policy Out of the Box: Content Abundance, Attention Scarcity, and the Failures of Digital Markets; Spectrum Rights in the Telecosm to Come; Bargains in the Information Marketplace: The Use of Government Subsidies to Regulate New Media; and Digital Television and the Allure of Auctions: The Birth and Stillbirth of DTV Legislation.
Robert W. Hahn is co-founder and executive director of the American Enterprise Institute-Brookings Joint Center and a resident scholar at AEI. Previously, he worked for the Council of Economic Advisers. He also has served on the faculties of Harvard University and Carnegie Mellon University. Dr. Hahn frequently contributes to leading scholarly journals and general-interest periodicals, including the American Economic Review, Yale Law Journal, Science, and the New York Times., He is the author of Reviving Regulatory Reform: A Global Perspective and In Defense of the Economic Analysis of Regulation. In addition, Dr. Hahn is co-founder of the Community Preparatory School – an inner-city middle school in Providence, Rhode Island, that provides opportunities for disadvantaged youth to achieve their full potential.
Thomas W. Hazlett is a senior fellow at the Manhattan Institute for Policy Research, a fellow at the AEI-Brookings Joint Center, a senior research associate at the Columbia Institute for Tele-Information, and a senior adviser to Analysis Group/Economics. Dr. Hazlett was formerly on the faculty of the University of California, Davis, where he headed the Program on Telecommunications Policy and has served as chief economist of the Federal Communications Commission, visiting scholar at the Columbia Graduate School of Business, and as resident scholar at the American Enterprise Institute. He has written for many general-interest periodicals and has been a columnist for Reason Magazine and ForbesASAP. Dr. Hazlett’s research has been published in numerous academic journals and law reviews, and he has provided expert testimony before courts, congressional committees, foreign governments, the Department of Commerce, the Congressional Budget Office, the General Accounting Office, and the FCC.
Jesse Gurman
Managing Spectrum: Why Economics Matters
Introduction
On April 19, the AEI-Brookings Joint Center hosted a conference on spectrum allocation and management. Current spectrum regulations are widely viewed as inefficient and costly, but there is no consensus regarding the best way to manage spectrum. Some believe that market mechanisms—usually in the form of auctions—are the best way to maximize spectrum’s value. Others argue that spectrum is a public good, and that at least some of it should be treated as a common resource open to any potential entrant. Proponents of this commons approach maintain that new interference-avoiding technology makes licensing unnecessary and impractical. At this Joint Center conference, experts will discuss the pros and cons of different forms of spectrum governance.
Presentation
Professor William Baumol presented his new paper, entitled “Toward An Evolutionary Regime for Spectrum Governance: Licensing or Unrestricted Entry?” which evaluates different proposals for a new spectrum management regime, in particular the contrast between private licensing and a public or commons approach.
William J. Baumol, Professor of Economics, New York University and Princeton University
Mr. Baumol discussed his paper, which advocates a “quasi-market” regime for allocating spectrum, after considering the pros and cons of various licensing and commons approaches. He emphasized that his support for a market-based mechanism was not automatic or ideologically driven, but rather that he specifically believed it to be the best way to promote efficient, innovative use of spectrum after considering all options. He endorsed the auctioning of private spectrum licenses, allowing for resale and renting in order to avoid artificial scarcity through hording. He rejected the commons approach, warning of the serious externalities that could arise from interference in a crowded, unorganized user pool. While appreciating that some technological advances were helping to reduce interference problems, he noted that this trend was not guaranteed to continue and that innovation could also create new, unforeseeable crowding problems. Mr. Baumol closed by calling for periodic reassessments of the license supply in order to allow flexibility in light of the unpredictability of the interference situation. He suggested re-auctioning the licenses every 15 years so that they could be revalued if need be, and that this interval be widely known and consistent in order to minimize investment uncertainty for licensees.
Discussion
Three discussants offered their comments on Mr. Baumol’s paper and some general opinion and perspective on spectrum allocation and management.
Gerald R. Faulhaber, Professor of Business and Public Policy and Management, Wharton School of the University of Pennsylvania
Mr. Faulhaber generally agreed with Mr. Baumol’s spectrum licensing approach, focusing his commentary on spectrum use by non-interfering agents once licenses were distributed. Here he disagreed with Mr. Baumol’s contention that a “private commons,” or market-based allocation of secondary, or non-interfering, spectrum space was a better system than government-allocated “easements.” He noted that transaction costs, including bargaining for and enforcing agreements, as well as detecting and identifying interference, could be substantial. Thus licensees may be tentative to lend out their unused space and instead let it go to waste. Government easements, on the other hand, could be granted readily and cheaply to those with non-interfering capabilities, and should satisfy at least in part commons supporters’ call for broader public access. Mr. Faulhaber agreed with Mr. Baumol’s argument for limited-term licensing, though he noted that it would be difficult for regulators to make credible commitments regarding specific actions to be taken 15 years in the future given pressures from various interest groups.
Ellen P. Goodman, Associate Professor of Law, Rutgers University Law School at Camden
Ms. Goodman claimed that a property rights framework was now generally widely accepted as superior to a commons framework, suggesting that much of the current debate centered on how best to implement and operate licensing. She offered some legal perspective on licensee rights, in particular with regard to the issue of non-interfering entities. She argued that licenses should not be seen as granting physical possession of a given frequency, but rather as allowing transmittance along that frequency, free from harmful outside interference. She argued that licensees should not have the power to exclude or negotiate the terms of non-interfering use of their frequencies, as this would amount to an extra right to which they were not entitled. Thus, viewing the unused space as not belonging to anyone, she rejected the notion of a secondary market and favored government easements. She recognized that some interference would be inevitable and recommended implementing procedures for identifying violators and resolving conflicts.
Thomas W. Hazlett, Senior Fellow, Manhattan Institute for Policy Research
Mr. Hazlett generally regarded Mr. Baumol’s paper as a valuable demonstration of how the market can be used effectively to allocate an intangible good like spectrum use. His most significant point of disagreement was over the periodic redistribution of licenses. He felt that Mr. Baumol was contradicting the central revelation of his own paper, that the market does a better job than central planners at allocating resources. He suggested that giving regulators control over the license supply would introduce inefficient rent-seeking influence and would also create uncertainty that would significantly discourage innovation and long-term investment. He viewed potential interference as a welcome sign of more saturated spectrum usage, in contrast to the vast underutilization today, and expressed confidence that market-based negotiations would sufficiently resolve any future conflicts among licensed users. He similarly rejected proposals for government regulators to grant non-interfering easements, entrusting that licensees would rent out space they did not need via the market.
Question and Answer
The panel admitted the political difficulty of taking back control of the spectrum from the broadcasters that currently utilize it and acknowledged that some compensation would likely be necessary to recoup the existing licenses, even though they have thus far been used free of charge.
Mr. Hazlett reiterated his opposition to re-auctioning spectrum licenses periodically, not wanting to cede any control of the process to regulators, who inevitably distort the market. He emphasized the capital-intense nature of the communications industry, noting that any disruptions or uncertainty in the market could significantly hurt investment. Mr. Baumol defended the reallocation component of his proposal, claiming that regulators would only be able to change the number of permits and would not be able to control who gets them or to alter the process in any other way. He considered this limited amount of flexibility in the system to be worthwhile and pointed to other regimes such as pollution permits where similar supply control is practiced.
