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Low-Income Demand for Local Telephone Service: Effects of Lifeline and Linkup

Author

Listed:
  • Daniel Ackerberg

    (University of California at Los Angeles)

  • Michael Riordan

    (Columbia University)

  • Gregory Rosston

    () (Stanford Institute for Economic Policy Research, Stanford University)

  • Bradley Wimmer

    (University of Nevada, Las Vegas)

Abstract

A comprehensive data set on local telephone service prices is used to evaluate the effect of Lifeline and Linkup programs on the telephone penetration rates of low-income households in the United States. Lifeline and Linkup programs respectively subsidize the monthly subscription and initial installation charges of eligible low-income households. Telephone penetration rates are explained by an estimated nonlinear function of local service characteristics (including subsidized prices) and the demographic composition of low-income populations. Empirical specification is based on an underlying discrete choice model of household demand for telephone service and an exact aggregation across demographic groups. A generalized method of moments estimator corrects for endogeneity and clustered heteroskedastic residuals. Estimated median price elasticity of demand for telephone service is -0.027 for the monthly charge and -0.008 for the connection charge. A policy simulation predicts that low-income telephone penetration rates would be 6.24% lower without Lifeline and Linkup. The analysis also suggests that Linkup is more cost-effective than Lifeline, and that low-income penetration would increase significantly if all states were to automatically enroll eligible households in Lifeline and Linkup programs.

Suggested Citation

  • Daniel Ackerberg & Michael Riordan & Gregory Rosston & Bradley Wimmer, 2008. "Low-Income Demand for Local Telephone Service: Effects of Lifeline and Linkup," Discussion Papers 07-032, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:07-032
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    File URL: http://www-siepr.stanford.edu/repec/sip/07-032.pdf
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    References listed on IDEAS

    as
    1. Cain, Paul & Macdonald, James M, 1991. "Telephone Pricing Structures: The Effects on Universal Service," Journal of Regulatory Economics, Springer, vol. 3(4), pages 293-308, December.
    2. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2008. "The Effect of Private Interests on Regulated Retail and Wholesale Prices," Journal of Law and Economics, University of Chicago Press, vol. 51(3), pages 479-501, August.
    3. Hausman, Jerry & Tardiff, Timothy & Belinfante, Alexander, 1993. "The Effects of the Breakup of AT&T on Telephone Penetration in the United States," American Economic Review, American Economic Association, vol. 83(2), pages 178-184, May.
    4. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    5. Wimmer, Bradley S. & Rosston, Gregory L., 2005. "Local telephone rate structures: before and after the Act," Information Economics and Policy, Elsevier, vol. 17(1), pages 13-34, January.
    6. Burton Mark & Macher Jeffrey & Mayo John W, 2007. "Understanding Participation in Social Programs: Why Don't Households Pick up the Lifeline?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-28, November.
    7. Garbacz, Christopher & Thompson, Herbert G, Jr, 2003. "Estimating Telephone Demand with State Decennial Census Data from 1970-1990: Update with 2000 Data," Journal of Regulatory Economics, Springer, vol. 24(3), pages 373-378, November.
    8. Eriksson, Ross C & Kaserman, David L & Mayo, John W, 1998. "Targeted and Untargeted Subsidy Schemes: Evidence from Postdivestiture Efforts to Promote Universal Telephone Service," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 477-502, October.
    9. Jerry A. Hausman, 1979. "Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 33-54, Spring.
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    Citations

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    Cited by:

    1. Ackerberg, Daniel A. & DeRemer, David R. & Riordan, Michael H. & Rosston, Gregory L. & Wimmer, Bradley S., 2014. "Estimating the impact of low-income universal service programs," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 84-98.
    2. Carlos Perez Montes, 2012. "Regulatory bias in the price structure of local telephone services," Working Papers 1201, Banco de España;Working Papers Homepage.
    3. Biancini, Sara, 2011. "Behind the scenes of the telecommunications miracle: An empirical analysis of the Indian market," Telecommunications Policy, Elsevier, vol. 35(3), pages 238-249, April.
    4. Ying Fan & Mo Xiao, 2015. "Competition and subsidies in the deregulated US local telephone industry," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 751-776, October.
    5. Gregory L. Rosston & Scott J. Savage & Bradley S. Wimmer, 2006. "The Impact of "Deregulation" on Regulator Behavior: An Empirical Analysis of the Telecommunications Act of 1996," Discussion Papers 05-006, Stanford Institute for Economic Policy Research.
    6. Pérez Montes, Carlos, 2013. "Regulatory bias in the price structure of local telephone service," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 462-476.
    7. Holt, Lynne & Galligan, Mary, 2013. "Mapping the field: Retrospective of the federal universal service programs," Telecommunications Policy, Elsevier, vol. 37(9), pages 773-793.

    More about this item

    Keywords

    telephone service; low-income; lifeline; linkup;

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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