Advances in Regulatory Economics series
Edited by Michael A. Crew, Paul R. Kleindofer and James I. Campbell Jr
Chapter 7: Calculating the Net Cost of the USO: A Practical Example from Norway
* Kristin Bergum† 1. INTRODUCTION This chapter is ﬁrst and foremost a story of practical experience in calculating the net cost of the universal service obligation (USO) in the postal sector. Although the cost of universal service has been the subject of much debate in the last decade, there are few instances in which a government and public operator have been agreed on a comprehensive method for ﬁxing the cost of the USO and the government has compensated the postal operator as a result. The approach described in this chapter represents a pragmatic adaption of economic theory, which has been successfully employed in Norway since 2002. Recent legislative developments on both sides of the Atlantic Ocean have given fresh urgency to addressing the practical problems presented by a calculation of the cost of universal service. On 20 February 2008, the European Union approved a new amendment to the European Postal Directive. The revised European directive will require member states to abandon the internal cross-subsidies made possible by the reserved area and calculate an explicit cost of universal service before public support can be provided. In the United States, the Postal Regulatory Commission is now beginning to implement the Postal Accountability and Enhancement Act of 2006. As part of the reforms introduced by the act, the Postal Regulatory Commission must annually prepare for Congress an estimate of the costs incurred by the US Postal Service in providing universal service. This chapter is divided as follows. Section 2 contains a short review of...
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