Discussion Papers

Robert Cohen, William Ferguson, Spyros Xenakis

A Cost Comparison of Serving Rural and Urban Areas in the United States Postal Service
Nr. 114 / Juli 1993

Summary

Delivery is thought to be more expensive in rural areas, because of a lower density of population. In a free market setting, efficient prices would reflect cost differences of serving rural and urban areas. Although the justification of postal monopolies is mostly based on geographical cost differences in combination with the political aim of a nationwide uniform tariff, no empirical investigations about cost differences of serving rural and urban areas are known. This study makes a first step to subdue this lack of knowledge and offers a cost comparison of serving rural and urban areas for the United States.

In this discussion paper, it is shown that the average time per day per possible delivery is only slightly higher in rural areas compared to urban areas. This unexpected result is partly explained by the fact that businesses require considerably more time per possible delivery - and businesses are mostly located in cities or in suburbs. On a delivered piece basis, rural routes use 20 percent more carrier time than do all city routes. This is explained by fewer average pieces per possible delivery per day for rural routes. The analysis takes into account further important facts of determining delivery costs in urban and rural areas. After calculating the profitability of rural delivery the authors conclude that it is unlikely that rural delivery would be abandoned if the universal service requirement were eliminated.

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