The impact of incentive regulation on productivity in the US telecommunications industry: A stochastic frontier approach

Abstract

This paper investigates whether the substitution of price cap regulation (PCR) and other forms of incentive regulation for traditional rate of return regulation (RRR) has had a measurable effect on productivity growth in the US telecommunications industry. A stochastic frontier approach is employed to compute the efficiency change, technological progress, and productivity growth for 25 LECs over the 1988–1998 time periods. By examining the relationship between the change in productivity growth and regulatory regime variables and other control variables, we find that PCR has a significant and positive effect, both in contemporaneous and lagged specifications.