Property Rights in Law and in

Economics
Broadcast frequencies and airwave
auctions
• Very often, the legal and economic conceptions of property
rights change, and broadcasting rights is an appropriate
example.
• Some of the objections that were raised to the recognition
of property rights in frequencies does not appeal to
economic logic.
• For eg, it was said that if broadcasting rights could be
bought and sold like any other faculty, the broadcast media
would come under the control of the wealthy.
• This confuses willingness to pay with ability to pay.
• The possession of money does not dictate the objects that
will be purchased.
• Under the federal regulatory scheme for
broadcasting, willingness to pay has played a
decisive role and a system of de facto property
rights has emerged.
• The property rights have been awarded in
comparative proceedings in which, much as in a
system of property rights, willingness to pay has
decided who will have a controlling stake in the
resource.
• This method of initially assigning broadcast rights
is, however, less efficient than an auction or sale.
• There is a good deal of uncertainty in the political
regulatory process, so the applicant who pays the most
money may not often receive it.
• Moreover, the social costs of this method of allocation
are much greater than the costs of allocation through
the market.
• Competition to obtain a license could dissipate the
expected value of the license in legal, lobbying, and
related expenses.
• Participation in an auction of broadcast frequencies
would not require costly legal and lobbying services
• The failure to assign the right to the applicant
who values it the most is only a transitory
inefficiency.
• Once broadcast rights have been obtained in a
licensing proceeding, they can be sold along with
the sale of the physical assets of the radio or
television station.
• Thus, broadcast rights usually end up in the
hands of those who are willing to pay the most
money for them, even if the initial ‘auction’ may
not have allocated the rights efficiently.
• So, in economic terms, there are property rights in
broadcast frequencies.
• The right is obtained initially in a competition in which
willingness to pay plays an influential and decisive role.
• Once obtained, the right is transferable, exclusive and
perpetual.
• In 1994, the feasibility of explicit property rights in the
electromagnetic spectrum was demonstrated when the
govt auctioned licenses to use the spectrum for mobile
telephone and other personal communication devices.
• Thousands of licenses were auctioned and the govt’s
total take was almost $ 8 billion.
• Auction theory is a difficult branch of economic
theory.
• It is particularly difficult when a large number of
property rights are auctioned at the same time.
• However, as long as a secondary market in the
auctioned property is permitted, as in the case of
spectrum auction, the difficulties can be resolved.
• He success of airwaves auction shows that the
use of property rights to ration access to the
electromagnetic spectrum is not just an
economist’s pipe dream.
 Rights to Future Use
• Purchase of a land for the intention of holding it for future
development is a common transaction but not in the case
of broadcast licenses.
• The same is true of water rights under the appropriation
system that prevails in the western states (of the US).
• The hostility of recognizing rights for future use is related to
the age-old hostility to speculation-the purchase of a good
not to use but to hold in the hope that it will appreciate in
value.
• Speculation, however, performs a valuable economic
function by helping to make prices accurately reflect the
conditions of supply and demand.
• Speculation, contrary to myth, can reduce price swings.
• Purchases for future are not necessarily speculative- they
can be a way of hedging.
• A farmer may decide to sign a contract now, at fixed price
(eg, for water), for future delivery of a specified quantity.
• If such sales are forbidden, the farmer may decide to use
more water now than he really needs, just to be sure of
having a right to the water in the future when he will need
it.
• The main effect of forbidding purchases of water, or
broadcast frequencies for future use is to encourage
inefficient uses, uses not to meet a demand but to stake a
claim.
• The problem of premature use is analytically
similar to that of excessive investment in
finding buried treasure or in obtaining a
patent.
• To acquire a valuable right, people may invest
resources beyond the point at which those
resources confer a net social benefit.