Yuri asks whether spectrum allocation systems "create  
rents." He does not make it clear whether (1) the  
purpose of the systems is to create private property  
rights where, otherwise, there would be common  
property and therefore an externality problem or (2)  
the purpose is to benefit some special interest group.  
Polly seems to be assuming the latter. I will assume  
the former.  
  
The question thus interpreted, it seem to me, is a  
sub-question of a larger question of whether  
establishing private property rights creates rents.  
What it creates, it seems to me, are opportunities to  
earn profit -- or perhaps higher profit than  
otherwise. Some people are better positioned than  
others to earn profit by owning a license. Under an  
auction system and under the usual simplifying  
assumptions, they will win the bids for licenses if  
they can get financing. These winners expect to earn  
profit on the difference between their appraisal of  
the licence's value and the appraisal of the next  
highest bidders who do not win. The same principle  
would apply to a government that privatizes land that  
it previously reserved for "public use" or for  
non-use.  
  
There are rents, in a sense. Or they are taxes. But  
whatever they are, they disappear immediately when the  
auction is over. If the government made a policy of  
take them again, it would destroy the incentive to  
bid. Just as rents on privatized  government-owned  
land would disappear as soon as the auction of the  
land was over. This suggests that the confusion of the  
Georgists is between (1) some original value which was  
captured so long ago that it is unidentifiable today  
and (2) today's land price. One might claim that there  
is a sense in which today's price reflects that  
captured price. But such a claim is irrelevant to an  
effort today to tax some unearned increment. It has  
already done been captured and the people who captured  
are most likely at least six feet under.  
  
By all rights, the revenue from creating property  
rights in the spectrum should go to the smarty who  
thought up the system. But it is difficult to  
appropriate such rents and to give them to the  
smarties unless the smarties are aligned with an  
autocratic government. In any case, to the  
entrepreneurs who pay for the licenses, these "rents"  
are merely costs of production.  
  
Best wishes  
  
Pat Gunning