Productivity measurement and price cap regulation: Issues for local exchange carriers in the USA |
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Affiliation: | 1. European Commission, Joint Research Centre (JRC), Ispra, Italy;2. European Commission, Joint Research Centre (JRC), Seville, Spain |
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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. |
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