Have you ever wondered why they would possibly still deliver white pages to every home when they are clearly most households would not be willing to pay the cost of producing them? Originally you could appeal to network effects. This means that you having a phonebook has value to me, because it means you can contact me, and I value people being able to contact me. Because there are  positive externalities to white pages, competitive free markets will not supply an efficient amount of them.  In this case it would make sense for a monopoly phone company or government to distribute white pages to everyone.

However, the internet now provides the majority of the country with free white pages, and for those few that don’t have the internet there is the free Google directory assistance. Given these alternatives, it seems fairly obvious that the social value of universal white page delivery now exceeds the cost of producing them. These costs are significant too. An article from today’s New York Times tell us that Verizon’s yearly white page distributions in New York alone takes 5,000 tons of paper.

The article also informs us why phone companies continue to distribute to everyone despite the total costs exceeding the social value:  regulators require them to do it. AT&T and Verizon are trying to get these rules repealed across the country, and are succeeding in some places:

Verizon hopes that regulators will waive the requirement that it deliver White Pages to all New Yorkers before the end of the year, said John Bonomo, a company spokesman… Verizon has a similar request before regulators in New Jersey, Mr. Bonomo said. In some states, including Florida, Ohio, Oklahoma and Georgia, AT&T has already received approval to stop delivering White Pages to all residents.

This offers an important caveat when considering government mandates for the sake of positive or negative externalities: at some point in the future, new technology may make the externality irrelevant, but the mandate will likely continue well beyond that point, and will have negative net social value. Consider regulations that mandate that states use a certain percentage of biofuel, solar, and wind energy. If at some point in the future a clean technology emerges that is cheaper than all of those, what are the odds that intrenched interests will prevent those mandates from being removed? Or more immediately, imagine a carbon tax is passed such that all externalities are priced into “dirty” energy use. At that point there is no longer an economic justification for these mandates. Will they go away then? I seriously doubt it. At this point they will have net negative social value.

About these ads