Xinzhu Zhang

Universal Service Obligations in Developing Countries

This paper develops a model to analyze the impacts of asymmetric information on optimal universal, service policy in the public utilities of developing countries. Optimal universal service policy is implemented using two regulatory instruments: pricing and network investment. Under discriminatory pricing asymmetric information leads to a higher price, and smaller network in the rural area, than under full information. Under uniform pricing, the price is also lower but the network is even smaller. In addition, under both pricing regimes, not only the firm, but also taxpayers have incentives to collude with the regulator.

Universal Service Obligations in LDCs

This paper develops a simple model in which the government has asymmetric information about a monopolistic firms marginal costs of providing an infrastructure service. The model is used to analyze the impact of asymmetric information and the threat of regulatory capture on optimal universal service policy in the public utilities of LDCs. The optimal universal service policy is implemented using 2 regulatory instruments: pricing and network investment. Under discriminatory pricing (between rural and urban areas), asymmetric information leads to a higher price and smaller network in the rural areas than under full information. Under uniform pricing, the price is lower but the size of the network is even smaller. Moreover, under both pricing regimes, taxpayers also have incentives to collude with the regulator. This hardens the coalition incentive constraint for the regulator and the firm.