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Article: Universal service subsidies and cost overstatement: Evidence from the U.S. telecommunications sector

TitleUniversal service subsidies and cost overstatement: Evidence from the U.S. telecommunications sector
Authors
KeywordsTelecommunications
High cost subsidies
Universal service
Issue Date2011
PublisherElsevier. The Journal's web site is located at http://www.sciencedirect.com/science/journal/03085961
Citation
Telecommunications Policy, 2011, v. 35 n. 7, p. 583-591 How to Cite?
AbstractUtility 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.
Persistent Identifierhttp://hdl.handle.net/10722/192337
ISSN
2015 Impact Factor: 0.982
2015 SCImago Journal Rankings: 0.658
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorBerg, SVen_US
dc.contributor.authorJiang, Len_US
dc.contributor.authorLin, Cen_US
dc.date.accessioned2013-10-24T01:50:01Z-
dc.date.available2013-10-24T01:50:01Z-
dc.date.issued2011en_US
dc.identifier.citationTelecommunications Policy, 2011, v. 35 n. 7, p. 583-591en_US
dc.identifier.issn0308-5961en_US
dc.identifier.urihttp://hdl.handle.net/10722/192337-
dc.description.abstractUtility 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.-
dc.languageengen_US
dc.publisherElsevier. The Journal's web site is located at http://www.sciencedirect.com/science/journal/03085961-
dc.relation.ispartofTelecommunications Policyen_US
dc.subjectTelecommunications-
dc.subjectHigh cost subsidies-
dc.subjectUniversal service-
dc.titleUniversal service subsidies and cost overstatement: Evidence from the U.S. telecommunications sectoren_US
dc.typeArticleen_US
dc.identifier.doi10.1016/j.telpol.2011.04.016en_US
dc.identifier.scopuseid_2-s2.0-79956215003en_US
dc.identifier.volume35en_US
dc.identifier.issue7en_US
dc.identifier.spage583en_US
dc.identifier.epage591en_US
dc.identifier.isiWOS:000293807800001-

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