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Comments of 71 Concerned Economists: Using Procurement Auctions to Allocate Broadband Stimulus Grants
(2009)
  • Vernon L. Smith
  • William J. Baumol, New York University
  • Kenneth J. Arrow, Stanford University
  • Susan Athey, Harvard University
  • Jonathan B. Baker, American University
  • Coleman Bazelon
  • Tim Brennan, University of Maryland
  • Timothy Bresnahan, Stanford University
  • Jeremy Bulow, Stanford University
  • Yeon-Koo Che, Columbia University
  • Peter Cramton, University of Maryland
  • Daniel A. Ackerberg, University of California - Los Angeles
  • James Alleman, University of Colorado at Boulder
  • Gregory S. Crawford, University of Arizona
  • Peter M. DeMarzo, Stanford Graduate School of Business
  • Gerald R. Faulhaber
  • Jeremy T. Fox
  • Ian L. Gale, Georgetown University
  • Jacob K. Goeree, California Institute of Technology
  • Brent D. Goldfarb, University of Maryland
  • Shane M. Greenstein, Northwestern University
  • Robert W. Hahn, University of Oxford
  • Robert E. Hall, Stanford University
  • Ward Hanson
  • Barry Harris
  • Robert G. Harris, University of California - Berkeley
  • Janice Alane Hauge, University of North Texas
  • Jerry A. Hausman, Massachusetts Institute of Technology
  • Thomas W. Hazlett, George Mason University
  • Kenneth Hendricks, University of Texas at Austin
  • Heather Hudson
  • Mark A. Jamison, University of Florida
  • John H. Kagel, Ohio State University
  • Alfred E. Kahn
  • Ilan Kremer, Stanford Graduate School of Business
  • Vijay Krishna, Pennsylvania State University
  • William Lehr, Massachusetts Institute of Technology
  • Thomas M. Lenard, Technology Policy Institute
  • Jonathan Levin, Stanford University
  • Yuan-Chuan Lien
  • John W. Mayo, Georgetown University
  • David McAdams, Massachusetts Institute of Technology
  • Paul R. Milgrom, Stanford University
  • Roger G. Noll, Stanford University
  • Bruce M. Owen, Stanford University
  • Charles R. Plott, California Institute of Technology
  • Robert H. Porter, Northwestern University
  • Philip Reny, University of Chicago
  • Michael H. Riordan, Columbia University
  • David J. Salant, Columbia University
  • Scott Savage, University of Colorado at Boulder
  • William F. Samuelson, Boston University
  • Richard Schmalensee, Massachusetts Institute of Technology
  • Marius Schwartz, Georgetown University
  • Andrzej Skrypacz, Stanford University
  • Daniel R. Vincent
  • Joel Waldfogel, University of Pennsylvania
  • Scott Wallsten, Stanford University
  • Robert J. Weber, Northwestern University
  • Bradler S. Wimmer, University of Nevada, Las Vegas
  • Glenn A. Woroch, University of California - Berkeley
  • Lixin Ye
  • John Hayes
  • Gregory L. Rosston, Stanford University
Abstract

The signatories to this document are economists who have studied telecommunications, auctions, and competition policy. While we may disagree about the stimulus package, we believe that it is important to implement mechanisms that make stimulus spending as efficient as possible. To that end, we have come together to encourage the National Telecommunications Information Agency (NTIA) and Rural Utilities Service (RUS) to adopt auction mechanisms to allocate broadband stimulus grants.

The broadband stimulus NOI asks which mechanisms NTIA and RUS should use to distribute grants and how those mechanisms address shortcomings in traditional grant and loan programs. In this note we explain why procurement auctions are more efficient and more consistent with the stimulus goals of allocating funds quickly than a traditional grant review process. We recommend that NTIA/RUS use procurement auctions to distribute at least part of the stimulus funds.

The American Recovery and Reinvestment Act (ARRA) requires NTIA/RUS to distribute $7.2 billion in broadband subsidies. The broadband component of the Act has dual, and not entirely consistent, objectives of providing immediate economic stimulus and improving broadband service. NTIA/RUS faces a formidable challenge in determining how to spend the money quickly and efficiently in ways that meet these goals. The traditional grant application process is long, complicated, and involves subjective and arbitrary decisions regarding which projects to fund. In other words, requesting and reviewing grant applications is not an effective way to implement the plan.

Procurement auctions, in contrast, provide a mechanism that can allocate grant money quickly, efficiently, and according to well-defined rules. As a result, procurement auctions offer NTIA/RUS the most promising method of maximizing broadband improvement while also creating some level of “temporary, timely, and targeted” stimulus. We therefore strongly recommend that NTIA/RUS adopt procurement auctions as its preferred method of distributing grants.

This memo has three parts. First, it explains why the traditional grant application process is unsuitable for this task and why procurement auctions are better suited. Second, it sketches out a procurement auction plan. This plan is intended to be a starting point from which auction design experts would proceed to build and implement a fully functional auction. Finally, we explain that even if policymakers are skeptical of procurement auctions, one could be implemented quickly as part of an initial tranche of stimulus funding in order to test its efficacy relative to traditional approaches. This approach would allow NTIA/RUS to quickly expand upon or modify the procurement auction program in subsequent funding rounds.

Disciplines
Publication Date
April 13, 2009
Citation Information
Vernon L. Smith, William J. Baumol, Kenneth J. Arrow, Susan Athey, et al.. "Comments of 71 Concerned Economists: Using Procurement Auctions to Allocate Broadband Stimulus Grants" (2009)
Available at: http://works.bepress.com/bruce_owen/2/