A Dynamic and Endogenous Approach to Financing the USO in a Liberalized Environment

Boldron, François; Borsenberger, Claire; Joram, Denis; Roy, Bernard; Lécou, Sébastien

doi:10.4337/9781848447288.00011

Cited by 25 publications

(6 citation statements)

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“…They also show that individual elements of the USO cannot be priced separately, as this would either result in inconsistent or biased net cost estimates. Boldron et al (2009) argue that the effective cost/burden of USO is endogenous to regulation and funding mechanisms. Similar points are raised in Borsenberger et al (2010) and in who discuss the appropriate tax base for a sharing mechanism and the competitive impact of various cost sharing and compensation mechanisms on the competitive equilibrium, respectively.…”

Section: Financing Of Universal Service Obligationsmentioning

confidence: 99%

Price Regulation and the Financing of Universal Services in Network Industries

Jaag¹

2013

Review of Law &Amp; Economics

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This article explores the complementary roles of price regulation and universal service regulation in network industries. It analyzes compensation for the universal service provider (USP) by public finances and a fund to which operators contribute. As long as the USP enjoys market power, price regulation may serve as a means to finance universal services. This implies allowing for price increases to compensate for the net cost of the universal service obligation. It releases competing operators or the general government budget from contributing to its financing but results in distorted pricing and reduced overall welfare due to inefficient entry. The analysis shows that current practices of costing and financing universal services may result in unintended market distortions. The article quantifies these effects and demonstrates how such distortions can be avoided.

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Section: Financing Of Universal Service Obligationsmentioning

confidence: 99%

Price Regulation and the Financing of Universal Services in Network Industries

Jaag¹

2013

Review of Law &Amp; Economics

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“…4 Under what conditions the net cost of the USO represents an unfair burden on the USP is a debatable question. Boldron et al (2009) argue that several criteria of unfairness may be relevant: When the burden exceeds a certain portion of the USP's profit, when it prevents the USP from making a "reasonable profit" or when the USP's profits are low compared to those of its competitors. In the literature, the criterion referring to a reasonable profit has often been used: According to this criterion, compensation should ensure that the USP collects a sufficient level of profit.…”

Section: Introductionmentioning

confidence: 99%

“…They also show that individual elements or dimensions of the USO cannot be priced separately as this would either result in inconsistent or biased net cost estimates. Boldron et al (2009) argue that the effective cost/burden of USO is endogenous to regulation and funding mechanisms. Similar points are raised in Borsenberger et al (2010) and in who discuss the appropriate tax base for a sharing mechanism and the competitive impact of various cost sharing and compensation mechanisms on the competitive equilibrium, respectively.…”

Section: Introductionmentioning

confidence: 99%

What is an Unfair Burden? Compensating the Net Cost of Universal Service Provision

Jaag¹

2011

Review of Network Economics

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This paper discusses the net cost of universal service obligations and the potential burden they represent on the universal service provider. Specifically, it analyzes the situation in the postal sector after full liberalization. It considers various interpretations of what an unfair burden might be and discusses the competitive impact of corresponding compensation scenarios by means of a stylized theoretical model with endogenous entry and coverage decisions.

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“…E.g. Boldron et al (2009) argue: "The burden is unfair if the USP's market power is not sufficient to counterbalance the weight of the USO to maintain a reasonable profit" (p. 68). 5 There are other interpretations of how the unfairness of a burden could be interpreted.…”

Section: Introductionmentioning

confidence: 99%

“…Only recently it has been argued that the market structure and the actual cost/burden of USO are directly related to regulation and the funding mechanism in place. Boldron et al (2009) argue that the challenge of establishing a funding mechanism is that the market structure and the effective cost/burden of USO are endogenous to regulation and funding mechanisms.…”

Section: Introductionmentioning

confidence: 99%

The interaction between universal service costing and financing in the postal sector: a calibrated approach

Jaag¹,

Trinkner²

2010

J Regul Econ

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The financing of universal service provision in the postal sector has traditionally relied on granting the universal service provider a reserved area. Together with growing electronic substitution, current liberalization policies promoting competitive entry may put the traditional universal service at risk. Hence, there is an increased interest in knowing the cost of universal service provision. The third EC postal directive proposes a calculation approach to separately determine the net cost of a universal service obligation and to compensate the universal service provider (USP). This paper discusses the interaction between universal service costing and financing and shows that the EC approach may result in distorted results. It also quantifies the effects based on a model calibration with Swiss data. The results show that separate costing and financing leads to a considerable under-compensation of the USP if there is a compensation fund to which every operator contributes. The USP is over-compensated if it is exempt from contributing to the fund (pay or play mechanism). The problem of under-or overcompensation can be resolved by an integrated computation of the net cost that includes the competitive effects of the financing mechanism. Such an integrated approach results in a fair compensation of the USP. AbstractThe financing of universal service provision in the postal sector has traditionally relied on granting the universal service provider a reserved area. Together with growing electronic substitution, current liberalization policies promoting competitive entry may put the traditional universal service at risk. Hence, there is an increased interest in knowing the cost of universal service provision. The third EC postal directive proposes a calculation approach to separately determine the net cost of a universal service obligation and to compensate the universal service provider (USP). This paper discusses the interaction between universal service costing and financing and shows that the EC approach may result in distorted results. It also quantifies the effects based on a model calibration with Swiss data. The results show that separate costing and financing leads to a considerable under-compensation of the USP if there is a compensation fund to which every operator contributes. The USP is over-compensated if it is exempt from contributing to the fund (pay or play mechanism). The problem of under-or overcompensation can be resolved by an integrated computation of the net cost that includes the competitive effects of the financing mechanism. Such an integrated approach results in a fair compensation of the USP.

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A Dynamic and Endogenous Approach to Financing the USO in a Liberalized Environment

Cited by 25 publications

References 0 publications

Price Regulation and the Financing of Universal Services in Network Industries

Price Regulation and the Financing of Universal Services in Network Industries

What is an Unfair Burden? Compensating the Net Cost of Universal Service Provision

The interaction between universal service costing and financing in the postal sector: a calibrated approach

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