Akhil Rao, Matthew Burgess, Daniel Kaffine: Orbital-use fees could more than quadruple the value of the space industry in Proceedings of the National Academy of Sciences
Abstract: The space industry’s rapid recent growth represents the latest Tragedy of the Commons. Satellites launched into orbit contribute to—and risk damage from—a growing buildup of space debris and other satellites. Collision risk from this orbital congestion is costly to satellite operators. Technological and managerial solutions—such as active debris removal or end-of-life satellite deorbit guidelines—are currently being explored by regulatory authorities. However, none of these approaches address the underlying incentive problem: satellite operators do not account for costs they impose on each other via collision risk. Here, we show an internationally harmonized orbital-use fee can correct these incentives and substantially increase the value of the space industry. We construct and analyze a coupled physical-economic model of commercial launches and debris accumulation in low-Earth orbit. Similar to carbon taxes, our model projects an optimal fee that rises at a rate of 14% per year, equal to roughly $235,000 per satellite-year in 2040. The long-run value of the satellite industry would more than quadruple by 2040—increasing from around $600 billion under business-as-usual to around $3 trillion. In contrast, we project purely technological solutions are unlikely to fully address the problem of orbital congestion. Indeed, we find debris removal sometimes worsens economic damages from congestion by increasing launch incentives. In other sectors, addressing the Tragedy of the Commons has often been a game of catch-up with substantial social costs. The infant space industry can avert these costs before they escalate.
Thomas Ash, Antonio M. Bento, Daniel Kaffine, Akhil Rao, Ana I. Bento Disease-economy trade-offs under alternative pandemic control strategies medRxiv
Abstract: Public policy and academic debates regarding pandemic control strategies note potential disease-economy trade-offs, and often prioritize one outcome over the other. Using a calibrated, coupled epi-economic model of individual behavior embedded within the broader economy during a novel epidemic, we show that targeted isolation strategies can avert up to 91% of individual economic losses relative to voluntary isolation strategies. Notably, the economic savings from targeted isolation strategies do not impose an additional disease burden, avoiding disease-economy trade-offs. In contrast, widely-used blanket lock-downs do create sharp disease-economy trade-offs and impose substantial economic costs per additional case avoided. These results highlight the benefits of targeted isolation strategies for disease control, as targeted isolation addresses the fundamental coordination failure between infectious and susceptible individuals that drives the recession. Our coupled-systems framework uses a data-driven approach to map economic activities to contacts, which facilitates developing effective control strategies for future novel pathogens. Implementation of this framework can help control disease spread and potentially avert trillions of dollars in losses.
Akhil Rao, Giacomo Rondina: Open access to orbit and runaway space debris growth draft
Abstract: As Earth's orbital space fills with satellites and debris, debris-producing collisions between orbiting bodies become more likely. Runaway space debris growth, known as Kessler Syndrome, may render Earth's orbits unusable for centuries. We present a dynamic physico-economic model of Earth orbit use under rational expectations with endogenous collision risk and Kessler Syndrome. When satellites can be destroyed in collisions with debris and other satellites, there is a manifold of open-access equilibria rather than a unique equilibrium. When debris can collide to produce more debris, this manifold allows Kessler Syndrome to occur along equilibrium paths. We show open access is increasingly and inefficiently likely to cause Kessler Syndrome as satellites become more profitable, highlighting the need for orbital-use management.
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, 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.
Abstract: Launch behaviors are a key determinant of the orbital environment. Physical and economic forces such as fragmentations and changing launch costs, or policies like post-mission disposal (PMD) compliance requirements, will alter the relative attractiveness of different orbits and lead operators to adjust their launch behaviors. However, integrating models of adaptive launch behavior with models of the debris environment remains an open challenge. We present a statistical framework for integrating theoretically-grounded models of launch behavior with evolutionary models of the low-Earth orbit (LEO) environment. We implement this framework using data on satellite launches, the orbital environment, launch vehicle prices, sectoral revenues, and government budgets over 2007-2020. The data are combined with a multi-shell and multi-species Particle-in-a-Box (PIB) model of the debris environment and a two-stage budgeting model of commercial, civil government, and defense decisions to allocate new launches across orbital shells. We demonstrate the framework's capabilities in three counterfactual scenarios: unexpected fragmentation events in highly-used regions, a sharp decrease in the cost of accessing lower parts of LEO, and increasing compliance with 25-year PMD guidelines. Substitution across orbits based on their evolving characteristics and the behavior of other operators induces notable changes in the debris environment relative to models without behavioral channels.
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