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

Journal of Applied Economics, Vol. 4, No. 1, pp. 163-186, May 2001

Posted: 30 Jun 2004

See all articles by Noel D. Uri

Noel D. Uri

Federal Communications Commission (FCC)

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.

Keywords: Allocative efficiency, incentive regulation, price caps, technical efficiency, telecommunications

JEL Classification: L1

Suggested Citation

Uri, Noel D., Technical Efficiency, Allocative Efficiency, and the Implementation of a Price Cap Plan in Telecommunications in the United States. Journal of Applied Economics, Vol. 4, No. 1, pp. 163-186, May 2001. Available at SSRN: https://ssrn.com/abstract=559202

Noel D. Uri (Contact Author)

Federal Communications Commission (FCC) ( email )

445 12th Street SW
Rm. TW-B204
Washington, DC 20554
United States
202-418-0062 (Phone)

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