Subsidising the next generation infrastructures. Consumer‐side or supply‐side?
Abstract
Purpose
It is widely accepted that next‐generation infrastructures will improve economic growth and employment. However, the cost of such a roll‐out is high and profitability is uncertain. Therefore operators hesitate to invest massively. In such a context, public intervention could help rollout. Several forms of intervention are possible. This paper aims to study, more specifically, subsidy strategies: subsidising demand by a contribution to each household's subscription fee for a pre‐determined time (a refund, a tax cut) or subsidising infrastructure by means of a contribution to operators' infrastructure costs.
Design/methodology/approach
The paper uses a dynamic mathematical model based on industrial organization and numerical examples based on techno‐economic analysis.
Findings
This paper shows that subsidising demand is more efficient, in welfare terms, than infrastructure subsidies as long as the time required for private operators to cover an area, without subsidies, is shorter than the duration of the subsidies required to cover the same area immediately, thanks to the increase in consumers' willingness to pay.
Social implications
This paper can help policy makers to optimise public investments in the next‐generation infrastructure.
Originality/value
This paper highlights the leverage that subsidies can provide to infrastructure roll‐out in a dynamic point of view.
Keywords
Citation
Jeanjean, F. (2010), "Subsidising the next generation infrastructures. Consumer‐side or supply‐side?", info, Vol. 12 No. 6, pp. 95-120. https://doi.org/10.1108/14636691011086071
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited