Allocative vs. Technical Spectrum Efficiency

Achieving allocative and technically efficient spectrum management is a key aspect of deregulatory reforms in several OECD countries. However, reform legislation offers few clues as to how these objectives should rank when they conflict with one another. An `innocent' prior acquisition of service-neutral spectrum at an efficiently run auction may prove allocative efficient but fail to be technically efficient if the spectrum is left fallow in the short-term. Accountability for the productive usage of a public resource and pressures from short-term political cycles may induce regulators to mandate some minimal level of activity. Two plausible regulatory responses are considered: use it or lose it clauses and spectrum trading incentives. The former favours technical efficiency whilst the latter promotes allocative efficiency. The argument is formalised in a simple economic model buttressing the roles of uncertainty and transaction costs to assert the primacy of allocative efficiency over technical efficiency. Correspondence to: Ben Freyens, Department of Economics, Faculty of Business and Government, University of Canberra, ACT 2601 Australia; T. +612-62012357; E. [email protected]