June, 2014

Community Broadband, Community Benefits? An Economic Analysis of Local Government Broadband Initiatives

  • Brian Deignan

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This paper examines the economic impact of local public initiatives to build and operate broadband internet infrastructure. I find that local efforts produce small economic benefits, but they cause a notable increase in the size of local government. Using difference-in-differences estimation on panel data consisting of 23 years of observations from core based statistical areas in the contiguous United States, I find that publicly supported broadband networks lead to over 3 percent more business establishments, while reducing worker income by 1.3 percent, all else being equal. The networks have no discernible effect on private sector employment, but they increase local government employment by around 6 percent.

In light of the financial difficulties some public networks experience and the limited economic benefits they offer, public involvement is more wisely directed toward fostering private sector innovation as opposed to maintaining a more active role. Local initiatives that maintain an active role for local government can lead to a misallocation of resources if they ignore market signals and cause taxpayers to bear the uncertainty of the broadband market as opposed to private shareholders.