Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 13: Evaluating the Demand Effects of Reductions in the Frequency of Delivery Service
* Edward S. Pearsall† and Charles L. Trozzo‡ 1 INTRODUCTION As mail volumes have contracted during the global recession, national postal services have explored measures to cut costs by reducing the quality of service, primarily by decreasing the weekly frequency of deliveries. Cohen and McBride (2008), IBM Global Business Services (2008) and Cohen et al. (2010) have all estimated the savings from reducing the frequency of delivery for the US Postal Service (USPS) as part of studies of the costs of elements of the Universal Service Obligation (USO). These studies all use the ‘profitability’ definition which equates the cost of the USO to the difference in a national post’s profit with and without it.1 More recently, USPS filed for an advisory opinion from the US Postal Regulatory Commission (PRC) preliminary to a request to the US Congress for permission to eliminate Saturday carrier deliveries starting in January 2011 (USPS, 2010c and 2010d). National posts within the European Union (EU) have an added incentive to explore the effects of reductions in frequency. The most recent postal directive of the EU allows its member governments to compensate their national posts for losses incurred to provide service under the EU’s USO following full market opening in 2011.2 This has led to a number of studies of the prospective costs of the elements of the USO. Boldron et al. (2006) and, more recently, Borsenberger et al. (2010) have applied the profitability definition to make estimates of the cost of relaxing the minimum weekly frequency of...
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