Incentives for Cost Shifting and Misreporting: U.S. Rural Universal Service Subsidies, 1991-2002

19 Pages Posted: 26 Nov 2010 Last revised: 26 Jul 2012

See all articles by Sanford V. Berg

Sanford V. Berg

University of Florida - Department of Economics

Liangliang Jiang

Hong Kong Polytechnic University

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: October 19, 2010

Abstract

The U.S. high cost loop support (HCLS) program, formerly referred to as the Universal Service Fund (USF), has been a key component of the Federal Communications Commission’s (FCC) program to promote telephone access in rural, high cost areas. This study uses data from 1140 rural telecom firms in 50 states between 1991 and 2002 to test the impact of the HCLS subsidy system on reported costs. Our findings suggest that firms in higher reimbursement thresholds tend to report higher costs to the FCC in order to qualify for higher support payments. We also find that the capping of total available subsidy funds increased the incentive to overstate or misclassify costs. Overall, our results suggest that this billion-dollar program deserves closer scrutiny than it receives at present.

Keywords: Telecommunications, High Cost Subsidies, Universal Service

JEL Classification: L96, H23, L51

Suggested Citation

Berg, Sanford V. and Jiang, Liangliang and Lin, Chen, Incentives for Cost Shifting and Misreporting: U.S. Rural Universal Service Subsidies, 1991-2002 (October 19, 2010). Information Economics and Policy, Vol. 23, No. 3-4, 2011. Available at SSRN: https://ssrn.com/abstract=1715053 or http://dx.doi.org/10.2139/ssrn.1715053

Sanford V. Berg (Contact Author)

University of Florida - Department of Economics ( email )

Gainesville, FL 32611-7140
United States
352-392-0132 (Phone)
352-392-7796 (Fax)

HOME PAGE: http://www.cba.ufl.edu/purc/facultyinfo.asp?WEBID=1260

Liangliang Jiang

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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