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Internet (Power) to the People: The Impact of Demand-side Subsidies in Colombia

Departments of Economics is welcoming you to online seminar with Michelle Sovinsky, Professor of Economics at University of Mannheim, presenting the paper "Internet (Power) to the People: The Impact of Demand-side Subsidies in Colombia" (with Julian Hidalgo). In this paper, the authors assess the impact on internet adoption from a pricing subsidy to low-income households implemented by the Colombian government during the period 2012-2014.

Welcome to Higher Seminar in Economics organised by the Department of Economics, SSE. The seminar speaker is is Michelle Sovinsky, Professor of Economics at University of Mannheim.

Michelle's research interests include empirical industrial organization, health economics, and applied microeconomics, on which she has many publications in journals such as American Economic Review, Econometrica, the International Economic Review, and the Journal of Human Resources.

Michelle will present the paper "Internet (Power) to the People: The Impact of Demand-side Subsidies in Colombia" (with Julian Hidalgo).

ABSTRACT: Finding strategies to bridge the digital divide has been a major goal of public policy over the last decades. Accordingly, multiple demand-side interventions have been implemented to decrease Internet adoption barriers. In this paper, we assess the impact on internet adoption from a pricing subsidy to low-income households implemented by the Colombian government during the period 2012-2014.  This is not a straightforward exercise as not all consumers in a small geographic region are offered the same plans and, more prohibitively, data on the size of the targeted market are not available. We develop a method that allows us to estimate a structural demand model of household preferences for Internet services and to gauge the effects of the subsidy policy while overcoming these limitations. We find that households present heterogeneity with respect to price sensitivity and that their adoption decisions are driven by the type of ISP (i.e., national or local provider) and the type of service (i.e., broadband or narrowband). We find that the price subsidy (of 12%) resulted in a 33% point increase in internet adoption among low-income consumers. The largest impact was in markets that had higher average coverage prior to the subsidy. Counterfactual results show that increasing the reliability of the service would increase adoption by almost as much as a price subsidy and would be most beneficial to households in less technically savvy markets. Our findings suggest that pricing subsidies are effective in closing the digital divide, but that policies focused on increasing the reliability of services are equally important.

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This is an online seminar which will take place via Zoom. The link to the seminar will be distrubted by invitation only. Please contact lyudmila.vafaeva@hhs.se if you would like to attend the seminar.

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