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The Economics of Space Expansion and Exploration

Caleb Tan

Many economists know Joseph-Louis Lagrange (1736-1813) for the Lagrange multiplier we often use in constrained optimisation problems in economics. However, Lagrange was in fact not an economist, but a mathematician, physicist and astronomer. While solving the famous three-body problem in classical physics, Lagrange discovered Lagrange points: points where the gravitational forces of two large bodies and the centrifugal force balance each other. Such Lagrange points of the Earth-Sun system are perfect positions to place satellites due to their low energy requirements to maintain their desired orbit. Two Lagrange points, L1 and L2, are currently being used for space exploration: the Deep Space Climate Observatory and the James Webb Space Telescope respectively. However, why this is so important to economics is that only five such Lagrange points exist. This leads to scarcity – the central economic problem where human wants for expansion and exploration are infinite, but space resources are finite – and therefore the competition for scarce resources.

Figure 1: What is a Lagrange Point (Source: NASA, 2023)

With technological progress and the onset of the space race since the Soviet Union launched Sputnik, the first artificial satellite to orbit Earth, there has been increasing competition in the space domain. Orbit-spectrum can be considered a natural resource. It is a limited frequency space for artificial satellites in orbit to provide Earth with some of the most important everyday functions such as telecommunications, remote-sensing, satellite broadcasting and weather services. Artificial satellites also provide us with important data for climate change research and national security. Due to the ever-increasing number of artificial satellites – both private and public – in orbit, orbit-spectrum conflicts have been rising. Not only do satellites interfere with one another, but a more crowded low-Earth orbit space raises chances of satellite collisions, creating space debris which remains permanently in space, and further causing more collisions. Intentional testing of kinetic anti-satellite (ASAT) capabilities by states such as the US, China, Russia and India contribute to these millions of pieces of debris in orbit. This results in the tragedy of the space commons, a reference to Garrett Hardin’s (1968) model in which unrestricted use of a finite valuable resource by people will end in the destruction of its value.

Figure 2: It’s Getting Crowded up in Space (Source: Buchholz, 2021)

While space expansion and exploration had been primarily limited to state actors in the middle of the twentieth century, the number of actors and agents innovating space technology and competing to get to space have multiplied. State-related agencies such as NASA used to be the only drivers of market creation in space through its procurement policy. However, economists have observed that there has been a pivot towards private sector led innovation which puts NASA in the backseat, in a role which merely fixes market failure. Technological acceleration in space manufacturing, propulsion and launch has lowered costs of production and the barriers to entry for new start-ups and incumbent aerospace companies to venture into the space domain. Much of space expansion and exploration are now propelled by space firms in the private sector launching rockets and deploying satellites, including SpaceX and Blue Origin. While there are many actors competing for space, space resources such as low-Earth orbit frequency and Lagrange points are few and scarce. Without proper allocative mechanisms on the use of outer space, there is a significant first mover advantage in the space race of the new age.

Figure 3: Who’s Responsible for Space Junk? (Fleck, 2022)

To prevent the tragedy of the space commons in which increased competition by new and increasing actors in space lead to the ultimate destruction of outer space, there is a role for economic policy design and mechanism to ensure resource efficiency and prevent market failure.


The 1967 Outer Space Treaty reaffirms free access to outer space, denies its ownership and promotes its use for exploration and research. However, lack of transparency and international cooperation in the space domain have left most space progress unchecked and unregulated. With key security and telecommunications infrastructure in space, national sovereignty on Earth could be potentially undermined by the careless use of outer space by non-state actors. As foreign policy advisor to 10 Downing Street Professor John Bew claims, ‘Space is one of the new frontiers of the international order where the balance of power is contested, and the rules have not yet been fully written.’


Economics has the potential to write these rules. Writing in the Journal of Law and Economics in 1981, economists Wihlborg and Wijkman advocated for a market-based approach to achieve the efficient use of space resources. They argue that a market model with complete allocation regime, divisible and marketable user rights, long contract periods, and well-defined liability rules, will promote greater efficiency than a bureaucratic system. They suggest that the main role of any international space resource authority would then be to distribute rents in an equitable manner, and conclude that efficient and equitable resource allocation can be achieved through auction. However, behind this deceptively simple framework lies economic problems of imperfect information and moral hazard. How will the market allocate low-orbit frequency space to governments launching a new spy satellite?


More than market competition, there needs to be cooperation. At present, the Artemis Accords enables peaceful, cooperative and fair utilisation of space resources through its exploration programme. It provides opportunities for non-space-faring nations lacking finances and resources to participate in space exploration. This inclusive structure encourages healthy competition and avoids potential conflict. A mechanism with built-in space interdependencies between nations potentially prevent the tragedy of the space commons.


If given the current physical, policy and technological constraints, we are able to maximise the equitable and efficient use of space for exploration and expansion to the benefit of all mankind, I am sure Langrage will be pleased.




Brukardt, R. (2022) ‘How will the space economy change the world?’, McKinsey Quarterly (; 13 Dec 2023).

Buchholz, K. (2021) ‘It’s Getting Crowded up in Space’, Statistia (; 27 Jan 2024).

Copiz, A. (2002) ‘Scarcity in Space: The International Regulation of Satellites’, CommLaw Conspectus, 10, 207-226.

Demetriou (2020) ‘Reaching for the Moon, Mars and beyond: This is how space exploration can benefit all’, World Economic Forum (; 27 Jan 24).

Fleck, A. (2022) ‘Who’s Responsible for Space Junk’, Statista (; 27 Jan 2024).

Hardin, G. (1968) ‘The Tragedy of the Commons’, Science, New Series, 162, 3859.

Marshall, T. (2023) The Future of Geography: How power and politics in space will change our world, London: Elliott and Thompson.

Mazzucato, M. and D. K. R. Robinson (2017) ‘Co-creating and directing Innovation Ecosystems? NASA’s changing approach to public-private partnerships in low-earth orbit’, Technological Forecasting & Social Change, 136, 166-177.

NASA (2023) ‘What is a Lagrange Point?’, NASA (; 27 Jan 24).

Silverstein, B. and A. Panda (2021) ‘Space Is a Great Commons. It’s Time to Treat It as Such.’, Carnegie Endowment for International Peace (; 13 Dec 2023).

Wilhborg, C. and P. M. Wijkman (1981) ‘Outer Space Resources in Efficient and Equitable Use: New Frontiers for Old Principles’, Journal of Law and Economics, 23-43.


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