Productivity growth and regulation in U.S. local telephony

Abstract

The paper aims at assessing the impact of alternative forms of regulation (price Caps and incentive regulation) that are gradually Substituting traditional rate- of-return regulation. A total factor Productivity (TFP) growth decomposition exercise is undertaken for the period 1989-1994. A flexible Translog cost function provides evidence of a non-homothetic cost function with slight diseconomies of scale and indicates labor saving technical change. corroborating previous stylized facts of the industry. The cost function estimation provided the necessary adjustment factors for the TEP growth decomposition. The evidence does not indicate differential efficiency levels accruing from alternative forms of regulation.