Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 583-591 |
| Number of pages | 9 |
| Journal | Telecommunications Policy |
| Volume | 35 |
| Issue number | 7 |
| DOIs | |
| Publication status | Published - 1 Aug 2011 |
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Universal service subsidies and cost overstatement : evidence from the U.S. telecommunications sector. / BERG, Sanford V.; JIANG, Liangliang; LIN, Chen.
In: Telecommunications Policy, Vol. 35, No. 7, 01.08.2011, p. 583-591.Research output: Journal Publications › Journal Article (refereed) › Research › peer-review
TY - JOUR
T1 - Universal service subsidies and cost overstatement : evidence from the U.S. telecommunications sector
AU - BERG, Sanford V.
AU - JIANG, Liangliang
AU - LIN, Chen
PY - 2011/8/1
Y1 - 2011/8/1
N2 - Utility subsidies are often defended as promoting universal service. However, specific support formulas may be poorly targeted and/or designed. The U.S. high-cost loop support (HCLS) program (formerly referred to as the Universal Service Fund (USF)), has been a key component of the FCC's USF program. With proposed initiatives for universal access to broadband, it is useful to critically evaluate how the HCLS creates a moral hazard problem. This study finds that companies receiving HCLS subsidies have an incentive to report high costs to the FCC in order to qualify for still higher support payments. Using data from 1136 rural telecom firms in 50 states (1992-2002), this study shows that some companies respond to current incentives by overstating costs (or incurring higher costs) as they approach the subsidy cutoff points. Compared to the no-subsidy group, companies at the point of greatest subsidy jump appear to overstate costs more due to larger marginal benefits. Such perverse incentives need to be recognized in future universal service initiatives.
AB - Utility subsidies are often defended as promoting universal service. However, specific support formulas may be poorly targeted and/or designed. The U.S. high-cost loop support (HCLS) program (formerly referred to as the Universal Service Fund (USF)), has been a key component of the FCC's USF program. With proposed initiatives for universal access to broadband, it is useful to critically evaluate how the HCLS creates a moral hazard problem. This study finds that companies receiving HCLS subsidies have an incentive to report high costs to the FCC in order to qualify for still higher support payments. Using data from 1136 rural telecom firms in 50 states (1992-2002), this study shows that some companies respond to current incentives by overstating costs (or incurring higher costs) as they approach the subsidy cutoff points. Compared to the no-subsidy group, companies at the point of greatest subsidy jump appear to overstate costs more due to larger marginal benefits. Such perverse incentives need to be recognized in future universal service initiatives.
UR - http://commons.ln.edu.hk/sw_master/366
U2 - 10.1016/j.telpol.2011.04.016
DO - 10.1016/j.telpol.2011.04.016
M3 - Journal Article (refereed)
VL - 35
SP - 583
EP - 591
JO - Telecommunications Policy
JF - Telecommunications Policy
SN - 0308-5961
IS - 7
ER -