Productivity measurement and price cap regulation: Issues for local exchange carriers in the USA

Margarete Z Starkey and John W Van Pelt

Telecommunications Policy, 1995, vol. 19, issue 2, 151-160

Abstract: The success of price cap regulation depends, in part, on proper specification of the price cap formula's productivity offset. The productivity offset should be based on the long-term trend rate of growth of industry total factor productivity (TFP) to emulate competitive pricing outcomes and provide the proper efficiency-enhancing incentives, and to remain relatively immune from the short-term fluctuations inherent in productivity measures. The measurement of TFP should utilize standard index number techniques to aggregate dissimilar measures of output, capital, labor and other relevant input costs.

Date: 1995
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