Radio Regulation Revisited: Coase, the FCC, and the Public Interest

It is now more than forty years since Ronald Coase’s seminal article on the Federal Communications Commission first appeared in the pages of the Journal of Law and Economics.1 The article remains important for a number of reasons, not least of which is that it offered his first articulation of the Coase Theorem.2 Of even greater importance for our purposes, the article literally redefined the terms of debate over American broadcast regulation, in both historical and contemporary treatments of the subject. Focusing particularly on the development of radio regulation, Coase rejected the prevailing notion that the establishment of the Federal Communications Commission (FCC) served the public interest. Rather, he concluded that its creation had been a mistake, the product of faulty economic reasoning. The complex regulatory apparatus developed under the Federal Radio Act of 1927 and recodified in the Federal Communications Act of 1934 was built on the flawed assumption that scarce resources—in this case the radio spectrum—had to be allocated by government fiat. A more efficient solution, Coase maintained, would have been to allocate the spectrum like any other scarce resource, on the basis of well-defined property rights and a free market guided by the price mechanism. Indeed, this is why he suggested that the spectrum ought to be cut up and sold at auction rather than regulated by the federal government.