European Broadband Spending: Implications of Input-Output Analysis and Opportunity Costs

Book chapter, 2013

Currently, many advanced countries have proposed broadband as part of the government’s responsibility to combat the digital divide. The idea is that government should increase the accessibility of broadband to people who have not yet been able to access it, especially in rural areas. A prime example has been the so-called “Obama Package,” a USD $ 787 billion stimulus bill signed into law on February 17, 2009, as the American Recovery and Reinvestment Act of 2009. This aAct included USD $ 7.2 billion to support a variety of broadband-related programs, including USD $ 4.7 billion for the build-out of broadband in “unserved” and “underserved” areas. Moreover, in Europe there have been initiatives to fund broadband as part of the European Economic Recovery Package. Several The dDecisions have been taken toward this end by the European Council, including the goal of: 1) a goal of 100% percent broadband coverage in Europe within the period 2010–2013 by spending ; 2) €1 billion euro to stimulate broadband in rural areas in the European Recovery Plan. While these programs have received considerable public attention, several issues come to the fore. The immediate one is whether government is spending money wisely. More precisely, a recommendation for using government funds should consider the opportunity cost,: i.e.that is, whether other alternatives for spending the available money will create greater or less benefit to society. This chapter will present a methodology to evaluate the opportunity cost of using government funds for broadband, with particular attention to the European proposal to publicly fund broadband infrastructures, and ask whether such investments would be justified as improving welfare. More generally, the methodology will address whether any investment, private or public, improves welfare.