Akhil Rao: Economic Principles of Space Traffic Control (job market paper) draft
Abstract: Open access to Earth's orbits presents a unique regulatory challenge. In this paper, I derive economic principles governing the choice of space traffic control policies. I show that policies which target satellite ownership, such as satellite taxes or permits, achieve greater expected social welfare than policies which target satellite launches, such as launch taxes or permits. Price or quantity policies can achieve equal expected social welfare due to the symmetry of uncertainty between regulators and firms. I also show that active debris removal can reduce the risk of runaway debris growth no matter how it is financed, but can only reduce the risk of satellite-destroying collisions if satellite owners pay for it or if competition from removal-induced entry reduces the returns to satellite ownership. Technical solutions to space traffic control tend to emphasize launch restrictions or public funding of debris removal technology development and use, but often ignore that current and prospective orbit users dissipate rents under open access. While satellite-focused policies can achieve first-best orbit use, attempts to control orbital debris growth and collision risk through launch fees or debris removal subsidies under open access may be ineffective or backfire.
Akhil Rao, Giacomo Rondina: Cost in Space: Debris and Collision Risk in the Orbital Commons draft
Abstract: As Earth's orbits fill with satellites and debris, the probability of collisions between orbiting bodies increases. Runaway debris growth, known as Kessler syndrome, may cause Earth's orbits to become unusable for millennia. We present the first long-run economic model of Earth orbit use which accounts for the risk of satellite-destroying collisions and Kessler syndrome under rational expectations. Orbital decay and profit maximization can prevent Kessler syndrome even in the absence of cleanup technologies, but open access will result in inefficiently high levels of launches, debris, and collision risk. Steady state debris levels and the equilibrium collision rate are increasing in the excess return on a satellite, and sustained increases in the excess return will lead open access to cause Kessler syndrome. Short-run rebound effects can also make open access debris levels increase as the rate of orbital decay increases and as launches generate less debris. These results suggest that careful attention to economic incentives, particularly the returns to satellite ownership, is necessary to ensure orbital sustainability.
Akhil Rao, Brennan McConnell: Elicitation and Corrective Taxation (mimeo)
Abstract: Marginal contributions to observable aggregate stocks are often unobservable in games with negative stock externalities, making optimal corrective taxation a difficult endeavor. We propose a new class of mechanism, the elicited tax, for such settings. The elicited tax uses an observable aggregate measure to elicit private information about marginal contributions, and a scored tax to penalize reports which are inconsistent with the observable aggregate and other reports. In this paper, we define a notion of strict propriety for elicited taxes, show that under perfect competition reports are Nash equilibria if and only if they are consistent with the observable aggregate, and that strictly proper elicited taxes ensure socially optimal output and externality production. We then study a particular strictly proper elicited tax, the Brier-Pigou tax, which combines a modified Brier scoring rule with a Pigouvian tax. Numerical experiments highlight three properties of the Brier-Pigou tax: (1) the tax can maximize social welfare when firms are perfectly competitive; (2) the tax achieves close to optimal welfare even when firms are perfectly collusive reporters; and (3) the proportion of consistent lies which are risk-dominated by truthful reporting for each firm depends on the number of firms providing reports and that firm's true marginal externality, suggesting conditions under which truthful reporting equilibria will be selected.
Trevor Bennett, Charles Cain, N.S. Campbell, Andrew Gemer, John Marino, Tobias Niederwieser, Akhil Rao (2018) The CENKI Space Economic Simulator: Analytical Verification of an Agent-Based Modeling Engine 2018 IEEE Aerospace Conference Proceedings
Trevor Bennett, Charles Cain, N.S. Campbell, Andrew Gemer, John Marino, Tobias Niederwieser, Akhil Rao (2018) The CENKI Space Economic Simulator: Demonstrating Agent-Based Modeling on Satellite Market Data 2018 IEEE Aerospace Conference Proceedings