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Empirical Evaluation of Regulatory Regimes in Local Telecommunications Markets

Author

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  • F. Gasmi
  • J. J. Laffont
  • W. W. Sharkey

Abstract

This paper relies on an engineering optimization model of the local telecommunication exchange network to calibrate the functions entering various regulatory mechanisms, from both traditional and modern (incentive) regulation, and evaluate their relative performance. The engineering process model is used to generate data, which are econometrically synthesized in a translog economic cost function. Using this estimated cost function and some empirical and institutional information on market and regulatory conditions, we then calibrate demand, social‐surplus, and disutility‐of‐(cost‐reducing)‐effort functions. These functions, together with probability distributions reflecting the regulator's beliefs about technology characteristics, allow us to quantitatively assess the social value of regulatory transfers and of good cost auditing procedures, the redistributive consequences of the various forms of regulation, and the sensitivity of their relative performance to the cost of public funds.

Suggested Citation

  • F. Gasmi & J. J. Laffont & W. W. Sharkey, 1999. "Empirical Evaluation of Regulatory Regimes in Local Telecommunications Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 61-93, March.
    • Handle: RePEc:bla:jemstr:v:8:y:1999:i:1:p:61-93
    DOI: 10.1111/j.1430-9134.1999.00061.x
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    References listed on IDEAS

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    1. Richard Schmalensee, 1989. "Good Regulatory Regimes," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 417-436, Autumn.
    2. Gasmi, F & Ivaldi, M & Laffont, Jean Jacques, 1994. "Rent Extraction and Incentives for Efficiency in Recent Regulatory Proposals," Journal of Regulatory Economics, Springer, vol. 6(2), pages 151-176, May.
    3. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
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    Cited by:

    1. Michele Moretto & Paolo M. Panteghini & Carlo Scarpa, 2008. "Profit sharing and investment by regulated utilities: A welfare analysis," Review of Financial Economics, John Wiley & Sons, vol. 17(4), pages 315-337, December.
    2. Philippe Gagnepain & Marc Ivaldi & David Martimort, 2013. "The Cost of Contract Renegotiation: Evidence from the Local Public Sector," American Economic Review, American Economic Association, vol. 103(6), pages 2352-2383, October.
    3. Biancini, Sara, 2011. "Behind the scenes of the telecommunications miracle: An empirical analysis of the Indian market," Telecommunications Policy, Elsevier, vol. 35(3), pages 238-249, April.
    4. Committee, Nobel Prize, 2014. "Market power and regulation (scientific background)," Nobel Prize in Economics documents 2014-2, Nobel Prize Committee.
    5. Castro Martins, Maria Lurdes, 2003. "International differences in telecommunications demand," Information Economics and Policy, Elsevier, vol. 15(3), pages 291-303, September.
    6. Briglauer, Wolfgang & Holzleitner, Christian & Vogelsang, Ingo, 2016. "The need for more efficient public funding of new communications infrastructure in EU member states," Information Economics and Policy, Elsevier, vol. 36(C), pages 26-35.
    7. Chalkley, Martin & Malcomson, James M., 2002. "Cost sharing in health service provision: an empirical assessment of cost savings," Journal of Public Economics, Elsevier, vol. 84(2), pages 219-249, May.
    8. Auriol, Emmanuelle & Biancini, Sara, 2009. "Economic Integration and Investment Incentives in Regulated Industries," TSE Working Papers 09-039, Toulouse School of Economics (TSE).
    9. Leon Yang Chu & David E. M. Sappington, 2007. "Simple Cost-Sharing Contracts," American Economic Review, American Economic Association, vol. 97(1), pages 419-428, March.
    10. Harvey James & Derek Johnson, 2002. "Understanding Regulatory Environments and their Impact on Economic Change," Industrial Organization 0202001, University Library of Munich, Germany.
    11. Kopsakangas-Savolainen, Maria & Svento, Rauli, 2010. "Comparing welfare effects of different regulation schemes: An application to the electricity distribution industry," Energy Policy, Elsevier, vol. 38(11), pages 7370-7377, November.
    12. Arup Bose & Debashis Pal & David E. M. Sappington, 2011. "On the Performance of Linear Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(1), pages 159-193, March.
    13. Philippe Gagnepain & Marc Ivaldi & David Martimort, 2010. "The renegotiation cost of public transport services contracts," Working Papers hal-00622961, HAL.
    14. repec:hal:wpaper:hal-00710639 is not listed on IDEAS
    15. Paolo Panteghini & Carlo Scarpa, 2008. "Political pressures and the credibility of regulation: can profit sharing mitigate regulatory risk?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 55(3), pages 253-274, September.
    16. Terry Robinson, 2006. "The Revealed Preference of Regulatory Menus: Evidence from the Pre-Nationalisation British Gas Industry," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(2), pages 213-221.
    17. Agiakloglou, Christos & Karkalakos, Sotiris, 2006. "Estimating Diffusion Rates for Telecommunications: Evidence from European Union," MPRA Paper 45862, University Library of Munich, Germany.
    18. Stroffolini, Francesca, 2012. "Access profit-sharing regulation with information acquisition and transmission," Research in Economics, Elsevier, vol. 66(2), pages 161-174.
    19. Gasmi, F. & Laffont, J. J. & Sharkey, W. W., 2000. "Competition, universal service and telecommunications policy in developing countries," Information Economics and Policy, Elsevier, vol. 12(3), pages 221-248, September.
    20. Philippe Gagnepain, 2001. "La nouvelle théorie de la régulation des monopoles naturels : fondements et tests," Post-Print hal-00622947, HAL.
    21. Agiakloglou, Christos & Karkalakos, Sotiris, 2006. "Estimating Diffusion Rates for Telecommunications: Evidence from European Union," MPRA Paper 45788, University Library of Munich, Germany.
    22. Gasmi, F. & Laffont, J. J. & Sharkey, W. W., 2002. "The natural monopoly test reconsidered: an engineering process-based approach to empirical analysis in telecommunications," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 435-459, April.
    23. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    24. William P. Rogerson, 2003. "Simple Menus of Contracts in Cost-Based Procurement and Regulation," American Economic Review, American Economic Association, vol. 93(3), pages 919-926, June.
    25. repec:hal:pseose:hal-00710639 is not listed on IDEAS

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