Bridging the digital divide: Analyzing subsidy allocation efficiency in telecommunications sector reforms

This paper aims to introduce the 'Subsidy Allocation Efficiencies' (SAE) metric as a practical tool for policymakers to evaluate subsidy programs for universal service provisioning. Using a qualitative case study approach, the paper investigates various subsidy allocation methods adopted by the Universal Service Fund, comparing them in terms of SAE. The SAE metric is validated by applying the ‘similarity index’ to Milgrom's optimal auction design. The study finds that subsidy allocations can be as efficient as 95 percent and as inefficient as −16 percent, generally identifying them as restrictive and prone to cartelization. However, ease of participation was found to reduce cartelization and improve efficiency. Focusing on India's Universal Service Fund, this study critically assesses subsidy allocation methods to provide policymakers with insights for optimizing public-funded infrastructure projects.