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Productivity Growth in Canadian Telecommunications

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  • Melvyn A. Fuss
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    Abstract

    Canadian telecommunications firms do not price proportionately to marginal cost. The prices of toll services tend to be above marginal costs, whereas the prices of basic local services are typically set below marginal costs by regulators. In such circumstances, estimates of TFP growth using the conventional Tornqvist (Divisia) formula which weights outputs by revenue shares in determining the rate of growth of aggregate output is theoretically incorrect and needs to be replaced by a formula which uses cost elasticity weights. Empirically, the conventional Tornqvist index yields a very distorted picture of efficiency gains in the two largest Canadian telephone companies during the 1980s. For Bell Canada, I calculate the upward bias to be approximately 75 percent over the period 1980-89 and 80 percent over the period 1985-89. For B.C. Tel a similar calculation yields an upward bias of 37 percent over the period 1980-89 and 48 percent over the period 1985-89.

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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 27 (1994)
    Issue (Month): 2 (May)
    Pages: 371-92

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    Handle: RePEc:cje:issued:v:27:y:1994:i:2:p:371-92

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    Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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    Cited by:
    1. Feng, Guohua & Serletis, Apostolos, 2010. "A primal Divisia technical change index based on the output distance function," Journal of Econometrics, Elsevier, vol. 159(2), pages 320-330, December.
    2. Guohua Feng & Apostolos Serletis, 2013. "Undesirable Outputs and a Primal Divisia Productivity Index Based on the Directional Output Distance Function," Working Papers 2013-15, Department of Economics, University of Calgary.
    3. Kulshreshtha, Mudit & Parikh, Jyoti K., 2001. "A study of productivity in the Indian coal sector," Energy Policy, Elsevier, vol. 29(9), pages 701-713, July.
    4. Athanassopoulos, Antreas D. & Giokas, Dimitris, 1998. "Technical efficiency and economies of scale in state owned enterprises: The Hellenic telecommunications organisation," European Journal of Operational Research, Elsevier, vol. 107(1), pages 62-75, May.
    5. Lien, Donald & Peng, Yan, 2001. "Competition and production efficiency: Telecommunications in OECD countries," Information Economics and Policy, Elsevier, vol. 13(1), pages 51-76, March.
    6. Mohsen Afsharian & Mohammadreza Alirezaee & Peter Reichling, 2012. "The master Malmquist index measurement using DEA-based weighted average efficiency," International Journal of Data Analysis Techniques and Strategies, Inderscience Enterprises Ltd, vol. 4(1), pages 21-42.

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