Funding Universal Service Obligations with an Essential Facility: Charges vs. Taxes and Subsidies
This paper compares three schemes for funding Universal Service Obligations in network industries with an essential facility: an uplift to the network access charge, the establishment of a Universal Service (US) fund financed through a lump-sum tax and a US fund financed through a unit tax. The comparison is made under a duopoly structure with a potential entrant and an incumbent, which owns the essential facility and is responsible for universal service. The incumbent is also constrained to offer the same price on all markets. Using a social welfare criteria, we show that the US fund financed with a lump sum tax dominates the other two schemes, while the US fund with unit tax is equivalent to the access charge uplift.
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