Incentives for cost shifting and misreporting : US rural universal service subsidies, 1991-2002

Sanford V. BERG; Liangliang JIANG; Chen LIN

doi:10.1016/j.infoecopol.2011.09.001

Incentives for cost shifting and misreporting : US rural universal service subsidies, 1991-2002

Sanford V. BERG, Liangliang JIANG, Chen LIN

Department of Economics

Research output: Journal Publications › Journal Article (refereed) › peer-review

2 Citations (Scopus)

Abstract

The US high cost loop support (HCLS) program, formerly referred to as the Universal Service Fund (USF), has been a key component of the Federal Communications Commission’s (FCC) program to promote telephone access in rural, high cost areas. This study uses data from 1136 rural telecom firms in 50 states between 1991 and 2002 to test the impact of the HCLS subsidy system on reported costs. Our findings suggest that firms in higher reimbursement threshold tend to report higher costs to the FCC in order to qualify for higher support payments. We also find that the capping of total available subsidy funds increased the incentive to overstate or misclassify costs. Overall, our results suggest that this billion-dollar program deserves closer scrutiny than it receives at present.

Original language	English
Pages (from-to)	287-295
Number of pages	9
Journal	Information Economics and Policy
Volume	23
Issue number	3-4
DOIs	https://doi.org/10.1016/j.infoecopol.2011.09.001
Publication status	Published - 1 Dec 2011

Funding

The co-authors are greatly indebted to anonymous reviewers and to David Sappington for very helpful comments and suggestions. They are grateful to Chunrong Ai, Simon Fan, Mark Jamison, seminar participants at University of Florida, and participants at the Southern Economics Association conference for helpful comments. We also thank the Public Utility Research Center, University of Florida for financial and data support; however, the views expressed here do not necessarily represent those of sponsoring organizations. A companion study (Berg et al., 2010) has a literature survey and focuses on cost patterns exhibited by firms near subsidy break-points. Regression analyses of the data are presented here, along with more rigorous tests of hypotheses.

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10.1016/j.infoecopol.2011.09.001

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abstract = "The US high cost loop support (HCLS) program, formerly referred to as the Universal Service Fund (USF), has been a key component of the Federal Communications Commission{\textquoteright}s (FCC) program to promote telephone access in rural, high cost areas. This study uses data from 1136 rural telecom firms in 50 states between 1991 and 2002 to test the impact of the HCLS subsidy system on reported costs. Our findings suggest that firms in higher reimbursement threshold tend to report higher costs to the FCC in order to qualify for higher support payments. We also find that the capping of total available subsidy funds increased the incentive to overstate or misclassify costs. Overall, our results suggest that this billion-dollar program deserves closer scrutiny than it receives at present.",

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AU - LIN, Chen

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N2 - The US high cost loop support (HCLS) program, formerly referred to as the Universal Service Fund (USF), has been a key component of the Federal Communications Commission’s (FCC) program to promote telephone access in rural, high cost areas. This study uses data from 1136 rural telecom firms in 50 states between 1991 and 2002 to test the impact of the HCLS subsidy system on reported costs. Our findings suggest that firms in higher reimbursement threshold tend to report higher costs to the FCC in order to qualify for higher support payments. We also find that the capping of total available subsidy funds increased the incentive to overstate or misclassify costs. Overall, our results suggest that this billion-dollar program deserves closer scrutiny than it receives at present.

AB - The US high cost loop support (HCLS) program, formerly referred to as the Universal Service Fund (USF), has been a key component of the Federal Communications Commission’s (FCC) program to promote telephone access in rural, high cost areas. This study uses data from 1136 rural telecom firms in 50 states between 1991 and 2002 to test the impact of the HCLS subsidy system on reported costs. Our findings suggest that firms in higher reimbursement threshold tend to report higher costs to the FCC in order to qualify for higher support payments. We also find that the capping of total available subsidy funds increased the incentive to overstate or misclassify costs. Overall, our results suggest that this billion-dollar program deserves closer scrutiny than it receives at present.

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Incentives for cost shifting and misreporting : US rural universal service subsidies, 1991-2002

Abstract

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