Template-Type: ReDIF-Paper 1.0
Title: Subsidies, Speed and Switching?
Author-Name: Julian Hildalgo
Author-Name: Michelle Sovinsky
Classification-JEL: L15, L51, L86, D12, D31
Keywords: Digital divide, Internet access, Developing countries, Covid-19, Limited choice sets, Consumer switching behavior

Abstract: Inequality in access to health, education, and employment opportunities is exacerbated in
developing nations due to the uneven distribution of access to high speed internet connections. In Colombia, 
the government enacted a policy (in 2012) to subsidize internet fees
for low income households to bridge the digital divide. The reductions were not granted to
all plans and thus created incentives for consumers to switch between plans. We estimate
a structural model of demand for internet connection plans, which we use to quantify the
importance of switching behavior. We estimate the model using data on plans offered by all
internet service providers to households in all socioeconomic (SES) groups across Colombia.
Our results indicate that the subsidy caused a non-negligible fraction of low-SES households
to switch internet plans - the majority of which switched to plans with lower speeds not
higher speeds. Furthermore, the more wealthy households (of the lower SES groups) were
twice as likely to switch plans than those in the lowest SES group. Our findings suggest that
the impact, not only internet adoption, but also on switching behavior should be taken into
account when formulating subsidies designed to bridge the digital divide.

Note: 
Length: 26
Creation-Date: 2022-11
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp374
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2022_374