This project involves a theoretical and empirical study of the allocation of operating licenses through a competitive market mechanism. Federal, state, and local governments allocate many different kinds of permits that allow companies to conduct business, e.g., broadcast licenses, airport takeoff and landing slots, liquor licenses, and taxi medallions. Previous work has shown that permitting free-market sale or resale of operating licenses, an approach gaining popularity with regulators, often does not result in an efficient allocation of licenses. The issue of whether the market produces an efficient allocation is a question that can only be answered empirically. Microeconomic theory does not provide a conclusive answer. The empirical part of this research will analyze the market allocation of airport takeoff and landing slots and radio broadcasting licenses. This research is important because it will shed light on how best to regulate these two public-service industries.
