Universal Service Obligations and Competition with Asymmetric Information
AbstractThis paper takes into account adverse selection in the implementation of universal service obligations (USOs) for a network industry with no bypass. USOs are characterized by a coverage constraint imposed on the network’s owner. We develop fully the model for a welfare maximizing coverage constraint and explain how to adapt it for a full coverage (ubiquity) constraint. We use a market without USO as a benchmark case. We show that, because of information rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it when firms turn out to be relatively inefficient. If the regulator is able to determine the industry structure by issuing licences to operate, the optimal number of firms reflects a trade-off between allocative efficiency and the industry capacity to finance internally the USO. The shadow cost of public funds then plays a dual role as it determines the terms of this efficiency funding trade-off in addition to the terms of the traditionnal efficiency rent trade-off.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1 in its series Cahiers du LASER (LASER Working Papers) with number 2007.22.
Length: 18 pages
Date of creation: 2007
Date of revision:
Contact details of provider:
Postal: LASER, Faculté d'Economie, Avenue Raymond Dugrand, CS 79606, 34960 MONTPELLIER Cedex 2, France
Web page: http://www.laser.univ-montp1.fr
More information through EDIRC
universal service obligations; coverage constraints; asymmetric information; regulation;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-14 (All new papers)
- NEP-COM-2007-04-14 (Industrial Competition)
- NEP-LAW-2007-04-14 (Law & Economics)
- NEP-MIC-2007-04-14 (Microeconomics)
- NEP-NET-2007-04-14 (Network Economics)
- NEP-REG-2007-04-14 (Regulation)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jean-Christophe POUDOU).
If references are entirely missing, you can add them using this form.