Picking Winners & Losers Often Good Government Policy

Parkin externalities 200Markets don’t capture externalities. Most of us understand that “the market” produces a pollution problem if unregulated. Utilities can save money burning dirty coal; the pollution cost falls on others. That’s been a hard problem to solve for two decades. Telecom policy has many similar choices. 

If you believe that better mobile broadband is an important goal, you often can’t expect even strong competition to deliver what’s best. LTE gets 2x to 10x the capacity in the same spectrum, depending on how it’s configured.  Allocating spectrum to 3G rather than 4G, as some countries still do, cuts the total bandwidth available. Choices like that are common in spectrum policy. Economists think of spectrum as a commons, where if everyone maximizes their own profits the overall system is a problem. 

I think this issue particularly important where there are few landlines, which is most of Africa and much of Latin America.

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