Estimating the impact of low-income universal service programs

Abstract

This policy study uses U.S. Census microdata to evaluate how subsidies for universal telephone service vary in their impact across low-income racial groups, gender, age, and home ownership. Our demand specification includes both the subsidized monthly price (Lifeline program) and the subsidized initial connection price (Linkup program) for local telephone service. Our quasimaximum likelihood estimation controls for location differences and instruments for price endogeneity. The microdata allow us to estimate the effects of demographics on both elasticities of telephone penetration and the level of telephone penetration. Based on our preferred estimates, the subsidy programs increased aggregate penetration by 6.1% for low-income households. Our results suggest that Linkup is more cost-effective than Lifeline and that auto-enroll policies are important, which calls into question a recent FCC (2012) decision to reduce Linkup subsidies in favor of Lifeline. Our study can inform the evaluation of similar universal service policies for Internet access.

Crowd‐Out or Affordability? The Lifeline Expansion's Effect on Wireless Service Spending

“…This is also consistent with the small access gains from landline Lifeline subsidies found by Ackerberg et al. (). Additional pre‐expansion Lifeline studies have focused on explaining low take‐up rates (Burton, Macher, & Mayo, ; Hauge, Chiang, & Jamison, ; Hauge, Jamison, & Jewell, , ), or estimating landline‐wireless substitution patterns (Macher et al., ; Rodini, Ward, & Woroch, ; Ward & Woroch, ).…”

Regulatory Bias in the Price Structure of Local Telephone Services

“…For example, descriptive analysis in Riordan (2002) documents the relation between local market telephone penetration and income level and race composition. Ackerberg et al (2008) address these shortcomings with a sample at the local market level focused on poor households, who are more likely to have an homogenous price elasticity. Ackerberg et al (2008) also control for the endogeneity of prices and subsidies.…”

“…Ackerberg et al (2008) address these shortcomings with a sample at the local market level focused on poor households, who are more likely to have an homogenous price elasticity. Ackerberg et al (2008) also control for the endogeneity of prices and subsidies. The current article contributes to this literature by considering how to control for the di¤erent price sensitivity of di¤erent consumers with aggregate data and introducing an explicit optimal regulation model for the endogenous choice of prices.…”

“…It has been a concern of academics and practitioners alike that the historical pricing structure of telecommunications included cross subsidies 3 across consumers (business versus residential, urban versus rural, high-income versus low-income). The main interest for economists in cross subsidies resides in the fact that they can potentially decrease social welfare as they disconnect prices and costs.…”

“…Ackerberg et al (2008). The local telephone service is charged according to usage-based, ‡at or hybrid rate plans.…”