What Was Ted Hearn Thinking? Not About Incentives

A funny thing happened over Labor Day weekend. Journalist Ted Hearn emailed us a thoughtful question about a piece we wrote on BEAD spending incentives. We took time to craft a serious response explaining the economics. Without waiting for our reply, Ted published a piece declaring our theory debunked.

That struck us as a little unfair, but it gives us a teachable moment about incentives: Ted’s, ours, and state broadband offices.

The 'gotcha' that wasn't

Ted's big revelation? West Virginia planned to spend only $625 million of their $1.2 billion BEAD allocation. “Based on your theory," he wrote, "West Va. should have gold plated the network by spending all $1.2 billion.”

Well, no. A given incentive doesn’t override every other constraint. States may propose to spend less for many reasons, including fewer qualifying broadband locations and NTIA rules. They can't just decide to build fiber optic networks shaped like the state bird or require that every connection come with a complimentary Tesla.

The real incentive (that Ted missed)

Our point was more nuanced. Under the new rules, because they are unlikely to be able to use any leftover money, states lose the incentive to find creative efficiencies that might free up funds for other broadband priorities. It's not that they'll automatically gold-plate everything. It's that they won't try as hard to find savings.

Think of it this way: if your boss says “spend this entire budget or lose it,” you probably won’t hunt as aggressively for deals. You'll still follow company policy, but you probably won't spend your weekend comparison shopping. Or in the simplistic example we gave for explication, you’ll buy the Lexus instead of the Honda if you personally pay the same price regardless.

The counterfactual problem

Ted’s right that we want to know how these incentives play out. The problem is that we can't truly know what West Virginia would have done under different incentive structures. Maybe they would have spent $500 million instead of $625 million. Maybe they would have found innovative ways to stretch dollars further.

The frustration of empirical economics is that we can't run controlled experiments on entire states to reach a definitive conclusion. Another is that empirical work takes time, even when reporters and policymakers want to draw quick, strong conclusions.

The research opportunity

But the beauty of empirical economics is that we can do things to get some idea of the answer. In this case, we will be able to compare across states and over time. Some states allocated heavily to satellite services, others focused on fiber. Some came in way under budget, others closer to their allocations. These variations will help us understand which factors really drive spending decisions. We may also be able to compare with the Biden-era plans, but so many rules were different that teasing out the incentive effects will be a tough obstacle to overcome.

Ted seemed particularly struck that states left money “on the table.” But in policy analysis, the interesting question isn't just how much they spent—it's how they spent it, what alternatives they considered, and what alternatives they didn’t consider.

A note on professional courtesy

We should mention that Ted asked his question Sunday afternoon on a holiday weekend and published first thing Tuesday morning, stating that he was “waiting to hear back” from us. Yes, he gave us 24 hours but as President Biden liked to say, c’mon man!

Even so, we're grateful for the prompt. This interaction itself is a great example of how different professions face different incentive structures. Journalists face daily deadlines, and researchers don’t really even understand the concept of a deadline. Ted waited 24 hours to publish even though he had an incentive to be fast. We responded after 24 hours even though we would rather have leisurely waited to collect all the data before saying anything. But neither Ted’s waiting a day nor our responding in “only” a day prove that we don’t each face those different incentives.

The bigger picture

The real lesson here isn't about BEAD spending or deadlines. It's about the complexity of predicting behavior in policy systems. Changing one rule doesn't automatically produce one specific outcome. It shifts the entire landscape of decisions people make.

That's why we study these things empirically. And why we look forward to analyzing the data as it comes in, rather than declaring victory or defeat based on headline results from a handful of states. We look forward to more interactions with Ted, but hope that he will give us what we consider a reasonable amount of (non-holiday) time to respond.

This Expert Opinion is exclusive to Broadband Breakfast.

Gregory Rosston is the Gordon Cain Senior Fellow and Steering Committee member at the Stanford Institute for Economic Policy Research (SIEPR). He is also the Director of the Public Policy program at Stanford University and a Professor of Economics, by courtesy.  He served as Deputy Chief Economist at the Federal Communications Commission working on the implementation of the Telecommunications Act of 1996.

Scott Wallsten is President and Senior Fellow at the Technology Policy Institute and also a senior fellow at the Georgetown Center for Business and Public Policy. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. He holds a Ph.D. in economics from Stanford University.

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