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.
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Gregory Rosston is Director of the Public Policy Program at Stanford University and Senior Fellow at the Stanford Institute for Economic Policy Research. He is also a Lecturer in Economics and Public Policy at Stanford University where he teaches courses on competition policy and strategy, intellectual property, and writing and rhetoric. Rosston served as Deputy Chief Economist at the Federal Communications Commission working on the implementation of the Telecommunications Act of 1996 and he helped to design and implement the first ever spectrum auctions in the United States. He co-chaired the Economy, Globalization and Trade committee for the Obama campaign and was a member of the Obama transition team. He has served as a consultant to various organizations including the World Bank and the FCC, and as a board member and advisor to high technology, financial, and startup companies. Rosston received his Ph.D. in Economics from Stanford University specializing in the fields of Industrial Organization and Public Finance and his A.B. with Honors in Economics from University of California at Berkeley.
Scott Wallsten is President and Senior Fellow at the Technology Policy Institute and also a senior fellow at the Georgetown Center for Business and Public Policy. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. He was the economics director for the FCC's National Broadband Plan and has been a lecturer in Stanford University’s public policy program, director of communications policy studies and senior fellow at the Progress & Freedom Foundation, a senior fellow at the AEI – Brookings Joint Center for Regulatory Studies and a resident scholar at the American Enterprise Institute, an economist at The World Bank, a scholar at the Stanford Institute for Economic Policy Research, and a staff economist at the U.S. President’s Council of Economic Advisers. He holds a PhD in economics from Stanford University.
