Subsidies and substitution: An empirical study of the lifeline program

Abstract In an effort to expand the use of telecommunications services by low-income Americans, the Federal Communications Commission's Lifeline program offers subsidies to qualifying low-income households. In recent years, the program has undergone significant reform to reduce the documented waste, fraud and abuse that accompanies many subsidy programs including Lifeline. The Commission has also questioned the efficiency of the program, if not the need for it, based on the argument that most Lifeline subscribers would obtain service without the subsidy. To quantify the displacement of regular paid accounts for subsidized Lifeline subscriptions, panel data and several empirical methods are used to quantify the relationship between the Lifeline and paid accounts. The analysis reveals no displacement effect, so Lifeline accounts are added to the total count of wireless subscriptions. A separating equilibrium, provided here, may explain these findings.