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Oil and Spectrum Rights Models Offer a Clue

Op-Eds and Articles

Thomas W. Hazlett’s “How Politics Stalls Wireless Innovation” (op-ed, Oct. 2) outlines the irrationality of the current political mismanagement of the electromagnetic spectrum and the challenges that a dynamic economy faces when the underlying resource is politically controlled.

As the late Warren Nutter put it: “Markets without property rights are a grand illusion.” The spectrum rights issue might better be understood by a thought experiment: Consider how efficiency and growth were promoted by the evolution of subsurface mineral property rights. Surface owners were able to divest surface from subsurface rights, allowing them both to farm the land and gain value from the extracted oil. Moreover, the oil developer could seek to acquire most of the subsurface oil pool by multiple purchases. The resulting “unit” reduced leakage, created stronger boundaries for the extracting firm and encouraged more investment in geology and exploration. Unitization made it possible to develop large oil fields and a secondary and tertiary recovery system. Property rights harness the discovery process—encouraging efficiency.

Perhaps most relevant, however, is the ease with which subsurface mineral rights could be reconfigured. Early oil rights focused on acquiring rights to oil pools—the “lakes” of this resource beneath the ground. When innovators made possible the joint fracking and horizontal drilling breakthroughs, horizontal ownership rules became the focus and ownership shifted from “lakes” of oil to “strata” of oil containing rock.

The oil industry was fortunate. Nothing that was a common property resource in 1900 has moved into private ownership. Columns and work such as Thomas Hazlett’s one might hope would reignite interest in restoring the property right prerequisites for market.

Originally published in The Wall Street Journal.