Licences, “Use or Lose” Provisions and the Time of Investment
Cesare Dosi, Michele Moretto
L51, D44, D92
Licences, Real Options, Use or Lose Provisions, Time of Investment
Economy and Society
Exclusive rights, like mineral leases and radio spectrum licences, often hold option-like features. This occurs when licencees do not face the obligation to to develop the lease or to undertake the investment required to use the assigned spectrum. However, to avoid licences being unused for lengthy periods, regulators sometimes set time limits, after which the exclusive right of exercise may be revoked, prior to its term, because of inaction. This paper looks at the potential impact of "use or lose" provisions upon the private time of investment. We find that these provisions may either increase or reduce the probability of early investment, depending on the risk of losing the licence and the expectations about on-going deployment costs.