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Economic welfare and universal service

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  • Madden, Gary

Abstract

Panzar (2000) argues that the composition of universal service bundles depend on both economic and political considerations. The factors policymakers consider in determining the universal service bundle include: (a) the strength of network effects, (b) costs of individual elements that comprise the bundle, and (c) redistribution goals. From an economic perspective, elements should only be included when the service embodies substantial network externalities. Interestingly, while there is an abundance of theoretical and applied analyses of the rationale for universal service and associated costs (and distortions), there is a paucity of available research on societal economic welfare gains. Accordingly, this study develops a procedure to determine the economic welfare gain from the universal provision of telecommunications services. Following (Hausman, 1981) and (Hausman et al., 1997), the study provides a theoretical measure of welfare change based on the compensating variation (CV) approach. In particular, the study modifies Hausman's CV formula to incorporate a dynamic model specified by Madden and Coble-Neal (2004). Importantly, this demand specification incorporates the notion that the current network size depends on the past size of the network and expectations of future size. This demand specification is the result of dynamic optimising behaviour by a representative consumer. Finally, the representative consumer's subscription choice is influenced by a telecommunications service network effect.

Suggested Citation

  • Madden, Gary, 0. "Economic welfare and universal service," Telecommunications Policy, Elsevier, vol. 34(1-2), pages 110-116, February.
  • Handle: RePEc:eee:telpol:v:34:y::i:1-2:p:110-116
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    Citations

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    Cited by:

    1. Ogiemwonyi Arakpogun, Emmanuel & Wanjiru, Roseline & Whalley, Jason, 2017. "Impediments to the implementation of universal service funds in Africa – A cross-country comparative analysis," Telecommunications Policy, Elsevier, vol. 41(7), pages 617-630.
    2. Poudou, Jean-Christophe & Roland, Michel, 2014. "Efficiency of uniform pricing in universal service obligations," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 141-152.
    3. Symeou, Pavlos C. & Pollitt, Michael G., 2014. "Fixed voice telephony in economies of different sizes: When industry policy meets technological change," Technological Forecasting and Social Change, Elsevier, vol. 86(C), pages 273-286.
    4. Loo, Becky P.Y. & Ngan, Y.L., 2012. "Developing mobile telecommunications to narrow digital divide in developing countries? Some lessons from China," Telecommunications Policy, Elsevier, vol. 36(10), pages 888-900.
    5. Nicholls, Rob, 2011. ""Please hold for your connection": Determining points of interconnection for open access broadband," 8th ITS Asia-Pacific Regional Conference, Taipei 2011: Convergence in the Digital Age 52320, International Telecommunications Society (ITS).
    6. Vong, Sokha & Lee, Duk Hee & Zo, Hangjung, 2012. "Cambodia mobile telecommunication market: Opportunities and challenges," 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All 72493, International Telecommunications Society (ITS).
    7. Nakamura, Akihiro, 2013. "Retaining telecommunication services when universal service is defined by functionality: Japanese consumers' willingness-to-pay," Telecommunications Policy, Elsevier, vol. 37(8), pages 662-672.
    8. Oğuz, Fuat, 2013. "Universal service in Turkey: Recent developments and a critical assessment," Telecommunications Policy, Elsevier, vol. 37(1), pages 13-23.
    9. Xia, Jun, 2016. "Universal service policy in China (I): Institutional elements and ecosystem," Telecommunications Policy, Elsevier, vol. 40(2), pages 242-252.

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