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.

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