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Universal Service Obligations and Competition with Asymmetric Information

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Author Info
Poudou, J.C.
Roland, M.
Thomas, L.

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Abstract

This 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.

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Publisher Info
Paper 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.

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Length: 18 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mop:lasrwp:2007.22

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Postal: Université de Montpellier 1, Faculté des Sciences Economiques, LASER, Av. de la Mer - Espace Richter, CS 79606, 34960 Montpellier Cedex 2, France
Web page: http://www.laser.univ-montp1.fr
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For technical questions regarding this item, or to correct its listing, contact: (Jean-Christophe POUDOU).

Related research
Keywords: universal service obligations; coverage constraints; asymmetric information; regulation;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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

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References listed on IDEAS
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