Volume 11, Issue 4

We focus on the role of the price of basic local telephone service on broadband adoption, to determine whether and to what extent overlapping legacy telephone policies interfere with the contemporary goal of increased broadband adoption. The analysis uses nationwide quarterly household-level survey data from 54,269 households. Using a multinomial logit specification, our key result is that higher prices for basic local service are associated with higher rates of broadband adoption, controlling for broadband availability, household income, age of the head of household, size of household, population density of the household’s location, race, and other factors.

This paper uses both a discrete choice demand model and a direct survey method to derive robust measures of the contribution of home broadband to consumer welfare during the early years of broadband adoption by U.S. households. We estimate a demand system that distinguishes between cable, DSL, satellite and fiber broadband versus dial-up Internet services. We allow household preferences for Internet services to vary depending on the share of rural households in each geographic market, and find a significant impact of rural geography on demand. The estimated own-price elasticity of demand for broadband declines over time from -1.5 in 2005 to -0.7 in 2008. Consumer surplus from Internet is found to concentrate in broadband services, with the net consumer benefits from home broadband in 2008 on the order of $32 billion per year.

Regulators have proposed various institutional alternatives to secure network resource adequacy and reasonably priced electric power for consumers. These alternatives prompt many difficult questions: Does the development of Demand Response reduce the need for new capacity? How effectively can a government-mandated Capacity Market foster efficient investment? How does centralized generator commitment (with revenue guarantees) compare to a system in which Generators voluntarily commit themselves with no revenue guarantees? If exclusive distribution contracts were replaced by unregulated retail competition, what would be the effects on investment and market prices? We use laboratory experiments to address these questions.

Since many merchants charge consumers a single price regardless of payment method, payment card rewards programs may cause some consumers to indirectly subsidize others. From our consumer survey, we find that higher income consumers received a higher rewards rate, and from merchant operating statements, we find that card costs are likely passed on to consumers. We calculate that in 2009 about $1.4b to $1.9b was transferred in the U.S. due to rewards on groceries and gasoline. Because of the distribution of rewards in the population, under certain assumptions, card rewards programs may be a welfare transfer from poor to rich.