Policy Papers

The Broadband Stimulus: A Rural Boondoggle and Missed Opportunity

by and

The American Recovery and Reinvestment Act included $7 billion for broadband development. We highlight two endemic problems with the rural subsidy programs managed by NTIA: 1) There is little economic rationale for subsidizing rural areas; and 2) NTIA’s mechanism for selecting projects appears to have been largely incoherent. The rationale for rural subsidies has been debunked by scores of economists – the programs turn out to be inefficient income transfer mechanisms and do not tend to increase subscriptions, but Congress forced NTIA to award subsidies. In its awards, NTIA adopted a system that led to awards differing by more than a factor of 100 in terms of expected cost-effectiveness. Had it adopted a more reasonable framework, many more households could have been connected for the same money, or the same number of connections could have been realized for a fraction of the cost.