Abstract
Estimating the cost of the Universal Service Obligation (USO) is becoming increasingly important in the regulation of the postal business. At least 13 Member States have calculated or are calculating the net cost of USO (Frontier Economics 2013). Out of the six countries reporting that the net cost of the USO was an unfair burden (CZ, EE, ES, IT, LT, NO), in four of them (ES, IT, PL, NO) public funding was used to finance the net cost (WIK 2013). When funded with revenues from the industry, one can argue that postal users are paying for the costs of the USO. When funded externally, the taxpayer is foregoing the provision of other public services.
The opinions expressed here are those of the authors and do not necessarily reflect the views of Frontier Economics.
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Notes
- 1.
It may look somehow inconsistent that the authors find that removing Saturday delivery would reduce welfare but reducing delivery to 3 days a week would increase welfare. However if the cost savings of moving to 3 days delivery are much bigger than the cost savings of removing Saturday delivery (the authors find that they are around 3 times larger), this could actually be the case. In addition, one could expect that the benefit from Saturday delivery is different from that of other weekdays for senders (weekend promotions, targeted marketing, etc.) and receivers (physical presence on delivery).
- 2.
We use two ways to present the net USO costs. When presenting the results of our scenario we’re using the common measure of the net USO cost relative to the total cost. When comparing against the WTP, we’re converting to a unit cost per mail item.
- 3.
The different directions of the impact are the result of two effects. As the share of the population in rural areas increases, the number of delivery points in the counterfactual required to cover this area increases. For 100 m, the number of delivery points is reduced by 97 % in the case of 3 % rural population while it is only reduced by 82 % when 60 % of the population lives in rural areas. For 1,000 m the difference in the decrease of delivery points when the share of the rural population increases from 3 to 60 % is only 0.15 % points (i.e. 99.97 and 99.82 % respectively). This implies that the 1,000 m counterfactual scenario does not face significant extra costs for covering the increased rural area that would counterbalance the saving from moving to that scenario in more rural countries.
- 4.
Under uniform pricing, a postal operator may not be able to fully recover the cost of the change in the USO scope due to some customers with WTP below the average not being willing to pay the average WTP. Recoverability therefore depends on the difference between WTP and net USO costs (a large difference suggests that costs can be recovered through charging less than the WTP) or the ability of the postal operator to price discriminate.
- 5.
The WTP for an increase from 3 to 6 days is calculated as the sum of the WTP of 3 to 5 days and 5 to 6 days.
- 6.
We note that in the following charts we have selected the lower bound of the WTP for delivery location. WTP estimates for this USO feature can be as high as 0.7€/item for delivery at home with respect to delivery at 100 m and 0.9€/item to avoid delivery at 1,000 m. With these alternative estimates, the WTP would be above the NUC.
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Houpis, G., Rodríguez, J.M., Strobel, C. (2015). Welfare Impact of Changes in the Scope of the USO. In: Crew, M., Brennan, T. (eds) Postal and Delivery Innovation in the Digital Economy. Topics in Regulatory Economics and Policy, vol 50. Springer, Cham. https://doi.org/10.1007/978-3-319-12874-0_10
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