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Technical Efficiency, Allocative Efficiency, and the Implementation of a Price Cap Plan in Telecommunications in the United States

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  • Noel D. Uri

    (Federal Communications Commission, Washington, DC)

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    Abstract

    Incentive regulation is designed to improve productive efficiency, enhance service quality and consumer welfare, and reduce the costs of regulation. The issue that is considered here is whether incentive regulation in the form of a price cap applicable to interstate access service to local loops in the telecommunications industry in the United States has resulted in an increase in the technical efficiency and allocative efficiency of local exchange carriers. The results suggest that for changes in technical efficiency, there is a definite randomness between 1985 and 1993 with technical efficiency increasing in some years and decreasing in others. Subsequent to 1993, however, there is a consistent improvement in technical efficiency. Given that incentive regulation in the form of price caps was implemented in 1991, it is likely that some portion of the improvement in technical efficiency subsequent to 1993 is attributable to incentive regulation.

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    Bibliographic Info

    Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

    Volume (Year): IV (2001)
    Issue (Month): (May)
    Pages: 163-186

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    Handle: RePEc:cem:jaecon:v:4:y:2001:n:1:p:163-186

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    Related research

    Keywords: allocative efficiency; incentive regulation; price caps; technical efficiency; telecommunications;

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    1. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-47, June.
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    17. Uri, Noel D., 2000. "Price caps and the error in X-factor calculations," Information Economics and Policy, Elsevier, vol. 12(4), pages 329-339, December.
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