Discussion Paper

Policy, Federalism, and Regulating Broadband Internet Access

Mar 1, 2001 | Timothy J. Brennan

Abstract

Following recent telecommunications mergers, local (mostly municipal and county) governments and the federal government are fighting over who should determine whether cable television systems must make their facilities available to unaffiliated providers of high-speed (“broadband”) Internet service. This intergovernmental dispute is only the latest in a series of such clashes regarding competition and communications policy. A brief review of the policy suggests that substantively, local open-access requirements are not yet warranted. However, the economics of federalism, primarily that the relevant markets are local, indicates that local governments should have the right to choose these policies, perhaps erroneously. Federal preemption could prevent learning from multiple independent local “experiments.” The best case for limiting local authority is if it is only the exploitation of opportunistic ability to extract nationwide rents in exchange for approving transfer of the incumbent’s cable franchise to an acquiring firm.Key Words: Federalism, Internet, regulation, vertical integrationJEL Classification Numbers: H1, L5, L1 We find that the welfare change from increasing NHS output could easily be negative, particularly when extra spending is financed by distortionary taxes. In contrast, expanding private health care is always efficiency-improving in our simulations. In our central estimates, increasing private health care by a pound’s worth of output produces an efficiency gain of 55 pence, but increasing national health output produces a net efficiency loss of 32 pence per pound! One reason for these results is that increasing the output of rationed health care has ambiguous effects on the total deadweight losses from waiting costs, but these costs unambiguously fall when the private health sector expands. Financing policies by user fees avoids the efficiency costs of raising distortionary taxes, and it also produces efficiency gains by reducing waiting lists. In fact, increasing national health care output produces an overall efficiency gain in most of our simulations, rather than an efficiency loss, when the policy is financed by higher user fees rather than by distortionary taxes. Still, the policy is generally less efficient than a user fee–financed increase in private health care.