Municipal Wireless Networks: A New Institutional Economics Explanation

Whether city governments should intervene and provide public funds for building Municipal Wireless Networks (MWN) is a controversial and important issue. Some people support the government’s intervention because MWN services seem to fit in the “public goods” category and result in “positive externality” (Cornes and Sandler, 1986). However, others are suspicious of the efficacy of the government’s intervention based on the competing New Institutional Economics (NIE) theory (Williamson, 2000; Cheung, 2002). Backed with the theoretical arguments of property rights and transaction costs, we critique the welfare economics policy recommendation which calls for government interventions. We predict that city governments will contract with private firms in developing MWN and will contribute city owned radio frequency and streetlights in the production of MWN services. Our initial findings from an empirical study confirm this proposition. Our study contributes to the MIS research on the emerging phenomenon by introducing NIE and provides practitioners with valid policy recommendations.