Incentive regulation and the change in productive efficiency in telecommunications in the United States (Q2759386)

This paper deals with the study of incentive regulation as an regulatory tool in the telecommunications industry in the United States. The basic structure of incentive regulation as it has most commonly adopted in the telecommunications industry is in the form of price caps. The main considered problem is whether price caps have resulted in an increase in productive efficiency. NEWLINENEWLINENEWLINEIn order to quantify effectively the productive inefficiency a stochastic frontier production function is introduced in the form \(y_{it}=\exp(x_{it}\beta+v_{it}-u_{it})\) and \(u_{it}=z_{it}\delta +w_{it}\), where \(y_{it}\) denotes the production of firm \(i\), \(i=1,2,\ldots,N\) for period \(t\), \(t=1,2,\ldots,T\); \(x_{it}\) is the \((1\times k)\), vector of inputs associated with firm \(i\) for period \(t\), \(k=1,2,\dots, K\); \(\beta\) is the \((k\times 1)\) vector of parameters to be estimated; \(v_{it}\) are i.i.d. \(N(0,\sigma^2_{v})\) random errors distributed independently of the \(u_{it}\); \(u_{it}\) are non-negative random variables associated with the technical inefficiency of production which are independently distributed such that \(u_{it}\) is obtained by truncation at zero of the normal distribution \(N(z_{it}\delta,\sigma^2_{z})\); \(z_{it}\) is a \((1\times m)\), vector of explanatory variables associated with technical inefficiency of production of firm \(i\) for time period \(t\), \(m=1,2,\dots, M\); \(\delta\) is an vector of parameters to be estimated, and \(w_{it}\) is a random variable defined by the truncation of normal distribution \(N(0,\sigma^2_{w})\) such that the point of truncation is \(-z_{it}\delta\), i.e., \(w_{it}\geq-z_{it}\delta\). Maximum likelihood estimates of the parameters of both the stochastic frontier production function and the inefficiency frontier specification together with the standard errors of estimates are presented. The computational results for technical efficiency of the production \(TE_{it}=\exp(-u_{it})\) of individual LECs are reported.