Imputation rules in regulated industries: The case of telecommunications

Dennis L. Weisman and Louis C. Gapenski

Telecommunications Policy, vol. 17, issue 1, 49-60

Abstract: Regulatory imputation is the allotment of profits from an unregulated subsidiary to a regulated subsidiary with the express purpose of reducing the latter's 'revenue requirements'. Here the authors examine the implications of regulatory imputation from the perspective of shareholder risk and return and its effect on the firm's incentives to operate efficiently. Poorly structured imputation rules may fail to provide sufficient incentives for profitable operation of the unregulated subsidiary, resulting in reduced contribution to the regulated subsidiary's revenue requirements. The views expressed herein are solely our own and do not necessarily represent those of the sponsoring organization.

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