Bridging the digital divide in the US

The internet plays a vital role in everyday life across the world. The US, however, has seen a slowdown in household broadband adoption since 2010, creating a gap between connected and unconnected households usually referred to as the “digital divide.” While prior studies have documented how the digital divide is related to income, demographics, and geographic location, this paper takes a different approach and focuses on the mechanisms that could help bridge this gap. To this end, we use a two-stage approach. First, we construct a comprehensive and detailed dataset on household internet usage and prices to estimate broadband demand. Second, we employ the estimated income-dependent demand elasticities to assess multiple counterfactuals aimed at evaluating a number of public policy initiatives designed to reduce the digital divide. Central to our analysis are policies recently approved in the 2021 Biden Infrastructure Act. We contrast the effectiveness of the policies on three metrics: a) policy costs, b) reduction of the digital divide, and c) increases in consumer surplus. We find that affordability policies (i.e., subsidies) can have a larger impact on decreasing the gap vis-à-vis infrastructure deployment policies (i.e., increased coverage or greater bandwidth). We discuss how income-varying subsidies can be particularly effective at reducing disparities in broadband access across the income distribution.