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Date: | Thu May 25 14:46:00 2006 |
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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
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