Engineering the new space economy: Market creation and institutional design

Abstract We explore how to expand commercial activity in orbital space by creating markets where no formal market mechanisms currently exist. Our theoretical model shows that a market emerges when buyers’ willingness-to-pay exceeds the costs of production and regulatory uncertainty. We emphasize that incentive structures and the regulatory environment are pivotal in developing these new markets and show that regulators can engineer viable markets from market failures using three distinct levers. We illustrate the applicability of the theoretical model through analysis of the supply-side dynamics of the launch industry, the creation of market demand through performance bonds for orbital debris mitigation and remediation, and the reduction of institutional risk via market-based auctions for the allocation of orbital spectrum and slots.