A Note on the Technical and Allocative Efficiency of Local Exchange Carriers in the United States |
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Authors: | Noel D Uri |
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Institution: | (1) School of Professional Studies, Trinity University, Washington, DC, 20017, U.S.A |
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Abstract: | The issue explored is whether incentive regulation of local exchange carriers in the United States has resulted in an increase
in efficiency. After providing an overview of the nature of incentive regulation, the methodology for measuring the effects
of incentive regulation on efficiency is reviewed. This methodology is data envelopment analysis and allows for the measurement
of both technical efficiency and allocative efficiency of individual local exchange carriers. The results of empirically implementing
the DEA approach indicate that there is little change in technical efficiency. In fact average technical efficiency in 1988
was the same as in 2001. Next, while outputs continued to grow at about their historical rate across LECs, the sizeable increase
in the two types of capital increased inputs well above their historical average rates for some LECs leading to short run
allocative inefficiency. On average, however, allocative efficiency shows no identifiable trend between 1988 and 2001. Finally,
in the aggregate, total economic efficiency does not demonstrate any trend between 1988 and 2001. |
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Keywords: | allocative efficiency local exchange carrier technical efficiency telecommunications |
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