Transmitters and receivers' investment to avoid interference: Is there an optimal regime?

The management of interference has been, and still is, the main concern in spectrum policy. Historically, interference has been dealt with by heavy regulation under an administrative control regime. Over the last decades, a new approach has been put forward based on users' property rights, better able to cope with a rapidly changing technological environment. The issue of dealing with interference across bands, however, remains crucial: What obligations should be put on users so as to keep interference at a socially acceptable level? Also, given that some unwanted emissions are bound to occur, how can private parties be provided with the right incentives to invest in high-quality reception technology? This paper assesses how well different regulatory regimes can lead to efficient outcomes. It develops an economic model of spectrum interference and identifies the efficient solution. A regime where spectrum users have the power to enjoin intruding emissions beyond a predefined level (property rights protection) is compared with a regime where users are forced to bear with intruding emissions, but are entitled to economic compensation for the harm suffered (liability rules protection). The analysis suggests that different regimes may perform differently under different circumstances depending on the cause of interference and, critically, on whether the services are organised as an open- or a close-architecture system. This suggests that regulators should pay more attention to the specific features of the different bands, and that the appropriate spectrum management regime should be designed to recognise these differences.