Productivity of the Regional Bell Operating Companies Under Rate-of-Return and Price-Cap Regulation

In 1991, the Federal Communications Commission began regulating the tariffed rates of the nation's largest local exchange carriers under a new regulatory scheme: price-cap regulation. Price caps were intended to "remedy" the ills of traditional rate-of-return regulation. They were to provide incentive for the telephone companies to adopt innovative technology, cost-cutting measures and provide telephone services more efficiently. To test the effectiveness of this incentive, this study examined productivity of the regional Bell operating companies (RBOCs) under both rate-of-return regulation and price-cap regulation. A total factor productivity model was developed and productivity gains were calculated under both regulatory regimes. The assumption of total factor productivity was then relaxed and value-added productivity and labor productivity measures were also examined. The point estimates of productivity gains indicate that price caps have led to greater productivity gains. Although productivity gains varied greatly across individual RBOCs, use of total RBOC data indicated that average productivity gains improved 1.3 percent under price caps using the TFP model. Similar improvements under price caps were estimated using the value-added (1.1 percent) and labor productivity measurements (1.3 percent). However, because of the variability of the annual estimates, none of the productivity improvements are statistically significant. In conclusion, calculations of RBOC productivity gains suggest that price caps have led to more efficient use of inputs--labor; materials, rents and services; and capital--in the production of telephone company output. Yet, the statistical evidence is not strong enough to unequivocally support the assertion that price cap regulation has led to great productivity gains.

Name thesis:degree_name

Master of Arts

Level thesis:degree_level

masters

Discipline thesis:degree_discipline

Economics

Department dc:contributor.department

Economics

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

1997

Author dc:creator

• Kelly, Tracey Elizabeth

Chair dc:contributor.committeechair

• Wentzler, Nancy A.

Committee members dc:contributor.committeemember

• Porter, W. Russell
• Reid, Brian K.

• productivity
• price cap regulation
• telecommunications
• rate of return regulation

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

etd-424016649721251

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/36698