Professor Shane Greenstein, Elinor and Wendell Hobbs Professor at the Kellogg School of Management, Northwestern University, estimates that broadband adds about $10 billion per year in new GDP and another $5 billion in unmeasured consumer surplus. These are large effects, but smaller than some previous estimates. The reason for the difference is that most studies attribute all gains from the Internet to broadband, rather than just the gains that came from upgrading to broadband from dialup. Professor Greenstein’s research, based on the economics of new goods, will help give policymakers a more accurate estimate of the benefits of broadband subsidies. Professor Greenstein will discuss his findings at our event this Friday on Capitol Hill.
Kellogg School of Management Professor Shane Greenstein estimates that broadband adds about $10 billion per year in new GDP and another $5 billion in unmeasured consumer surplus. These are large effects, but smaller than some previous estimates. The reason for the difference is that most studies attribute all gains from the Internet to broadband, rather than just the gains that came from upgrading to broadband from dialup. Professor Greenstein’s research, based on the economics of new goods, will help give policymakers a more accurate estimate of the benefits of broadband subsidies.
How best to include broadband in an economic stimulus package depends, in part, on understanding two critical issues: how broadband affects economic growth, and how the credit crisis has affected broadband investment. In particular, one might favor aggressive government intervention if broadband stimulates growth and investment is now lagging. Alternatively, money might be better spent elsewhere if the effects on growth are smaller than commonly believed or private investment is continuing despite the crisis.
TPI senior fellow and Emory University professor Paul Rubin writes in the Wall Street Journal that, while the Internet has greatly increased the efficiency of markets, it may also have facilitated the formation of bubbles. He suggests that “regulators have a difficult task: It will be very hard for them to eliminate the downside of the Internet and other improvements in financial markets without simultaneously eliminating the benefits.”
Bubbles have always been part of markets. The 17th century Dutch Tulip mania and the 18th century’s South Sea Bubble are part of capitalist folklore. Recently, there seems to be an increase in the number and severity of bubbles and crashes — Internet stock prices, housing prices and the stock market come to mind.
The Technology Policy Institute has posted three new Publications of Note by outside authors on subjects of interest to our audience:
- Tim Brennan, ‘Night of the Living Dead’ or ‘Back to the Future’? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency
- Bronwyn Howell, The End or the Means? The Pursuit of Competition in Regulated Telecommunications Markets
- Andrea Renda, I own the pipes, you call the tune: The net neutrality debate and its (ir)relevance for Europe
The debate of the so-called ?net neutrality? has been under the spotlight in the US for many years, whereas many believed it would not become an issue in Europe. However, over the past few months the need to revise the current regulatory framework to encourage investment in all-IP networks has led to greater attention for net neutrality and its consequences for investment and competition. After the Commission adopted a ?light-touch? approach to the issue at the end of 2007, the European Parliament has started to reconsider the issue, and it is reportedly considering a move towards more pro-neutrality rules. This paper summarises the main issues at hand in the net neutrality debate and the views expressed by advocates and opponents of the neutrality principle. The problem is described from a multi-sided market perspective, stressing the role of network operators as intermediaries in the ?layered? architecture of all-IP networks. Finally, the paper discusses whether the European regulatory framework and its interaction with ex post competition policy are likely to solve many of the concerns of net neutrality advocates without any need for ad hoc regulation; and whether currently proposed solutions are likely to prove welfare-enhancing and conducive to a better regulatory environment for future e-communications.
‘Night of the Living Dead’ or ‘Back to the Future’? Electric Utility Decoupling, Reviving Rate-of-Return Regulation, and Energy Efficiency
The distribution grid for delivering electricity to the user has been paid for as part of the charge per kilowatt-hour that covers the cost of the energy itself. Conservation advocates have promoted the adoption of policies that “decouple” electric distribution company revenues or profits from how much electricity goes through the lines. Their motivation is that usage-based pricing leads utilities to encourage use and discourages conservation. Because decoupling divorces profits from conduct, it runs against the dominant finding in regulatory economics in the last twenty years – that incentive-based regulation outperforms rate-of-return. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort utility incentives to inform consumers about energy efficiency – getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. Justifying policies to subsidize energy efficiency requires either prices that are too low or consumers who are ignorant.
The Technology Policy Institute announced today a new research project that will delineate the budget and economic benefits provided by highly skilled immigrants working in the United States. TPI’s research will be underwritten by a grant from the Ewing Marion Kauffman Foundation, the largest private-sector funding source for economic research in the United States.