There are many voices calling for increased initiatives by municipalities to build and operate broadband internet infrastructure as a public utility, but until this week, very little in the way of economic analysis to fully examine whether the benefits justify the costs.

A paper released this week finds that local efforts produce small economic benefits, but cause a notable increase in the size of local government.

In “Community Broadband, Community Benefits? An Economic Analysis of Local Government Broadband Initiatives”, Brian Deignan of the Mercatus Center at George Mason University found that “publicly supported broadband networks lead to over 3 percent more business establishments, while reducing worker income by 1.3 percent, all else being equal. The networks have no discernible effect on private sector employment, but they increase local government employment by around 6 percent.”

He recommends fostering private sector investment:

In light of the financial difficulties some public networks experience and the limited economic benefits they offer, public involvement is more wisely directed toward fostering private sector innovation as opposed to maintaining a more active role. Local initiatives that maintain an active role for local government can lead to a misallocation of resources if they ignore market signals and cause taxpayers to bear the uncertainty of the broadband market as opposed to private shareholders.

According to the paper, “the private sector impact of [public broadband] infrastructure investment is not large enough to ignore the growth in local
government and the financial stress that publicly supported broadband puts on a community.”