Universal Service Obligations in Ldcs

32 Pages Posted: 9 Aug 2004

See all articles by Antonio Estache

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

Xinzhu Zhang

Chinese Academy of Social Sciences (CASS) - Research Center for Regulation and Competition

Date Written: May 2004

Abstract

This paper develops a simple model in which the government has asymmetric information about a monopolistic firm's marginal costs of providing an infrastructure service. The model is used to analyze the impact of asymmetric information and the threat of regulatory capture on optimal universal service policy in the public utilities of LDCs. The optimal universal service policy is implemented using 2 regulatory instruments: pricing and network investment. Under discriminatory pricing (between rural and urban areas), asymmetric information leads to a higher price and smaller network in the rural areas than under full information. Under uniform pricing, the price is lower but the size of the network is even smaller. Moreover, under both pricing regimes, taxpayers also have incentives to collude with the regulator. This hardens the coalition incentive constraint for the regulator and the firm.

Keywords: Universal Service Obligations (USO), Asymmetric information, regulation, collusion, regulatory capture

JEL Classification: L43, D82, O12

Suggested Citation

Estache, Antonio and Laffont, Jean-Jacques and Zhang, Xinzhu, Universal Service Obligations in Ldcs (May 2004). Available at SSRN: https://ssrn.com/abstract=573721 or http://dx.doi.org/10.2139/ssrn.573721

Antonio Estache (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

Jean-Jacques Laffont

University of Southern California - Department of Economics (Deceased)

No Address Available

Xinzhu Zhang

Chinese Academy of Social Sciences (CASS) - Research Center for Regulation and Competition ( email )

Beijing, 100732
China

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