After decades of handing out virtually free licenses for the nation's airwaves, the federal government has wised up and started charging. The recent auctions of licenses for paging and interactive television raised an unexpected $833 million, and an auction for personal communications services could net over $10 billion.
Airwave auctions are doubly good: They ensure that the value of a slice of the spectrum is captured by the public rather than the winner at a hearing or lottery. They also speed wireless services to the public by putting licenses directly into the hands of the companies that intend to use them.
Ma rket mechanisms such as auctions won't work everywhere. Auctions, however, should be the rule for all future assignments of airwaves, including any new broadcasting spectrum. Broadcasters and sympathetic politicians want to retain the system of assigning free licenses to insiders and others with political clout. They argue that choice should not be sullied by financial considerations. That is absurd: People "buy" broadcast licenses by purchasing radio and TV stations.
The situation is more complex for tangible resources. Auctions work fine for oil drilling rights, of course. But market mechanisms have been less successful for rights to emit sulfur dioxide, a cause of acid rain. Here, the government allows polluting companies to trade credits. One problem: People downwind are not happy when an owner chooses to buy pollution credits rather than invest in a cleanup.
Entrenched interests also make it hard to reallocate fishing, grazing, and lumbering rights. Still, market mechanisms could help. They can hardly do worse than the current systems in which the extractors pay little for their rights.
Market mechanisms such as auctions won't fix every problem in allocating economic rights that derive from government. But they certainly deserve a prominent place in every policymaker's toolbox.