Property Rights to Radio Spectrum in Guatemala and El Salvador: An Experiment in Liberalization

In most countries, wireless communications rely on administrative allocation of radio spectrum. The inefficiencies associated with this centralized approach have led economists, starting with Coase in 1959, to suggest "propertyzing" radio spectrum. Critics of this approach assert that property rights impose prohibitive transaction costs and inhibit development of wireless services. Reforms enacted in Guatemala (in 1996) and El Salvador (in 1997) have largely implemented policies suggested by Coase, yielding a natural experiment. Evidence generated in the mobile telephone market suggests that these regimes are associated with relatively efficient policy outcomes, including abundant spectrum availability and a high degree of competitiveness, and with correspondingly low retail prices and high rates of output (minutes of use). Further, such markets appear to avoid high transaction costs in the public or private sectors. We conclude that these liberal reforms tend to produce results consistent with Coase's policy conjecture.