درپوش های قیمت و خطا در محاسبات فاکتور x

Calculation of the X-factor used for price caps has a fundamental flaw when it is based on conventional growth accounting total factor productivity analysis. This error is discussed and the appropriate corrective action is indicated. In an example based on the X-factor used for determining the change in the price for local exchange carriers’ interstate access service in the United States, it is shown that the appropriate X-factor is about 25 percent greater than that based on conventional growth accounting total factor productivity analysis.

A significant appeal of price cap regulation is in its seeming ability to provide better incentives than rate of return regulation for cost reduction and technological innovation (Sherman, 1985 and Sherman, 1992). For example, in 1990 the Federal Communications Commission determined that an incentive-based price cap system would more closely represent the results of a competitive market than did the prior regulatory method of rate of return regulation (Policy and Rules Concerning Rates for Dominant Carriers, Second Report and Order, CC Docket No. 87-313, 5 FCC Rcd 6786, 6789 (1990)) 2. Specifically, the price cap plan was “designed to mirror the efficiency incentives found in competitive markets…by encouraging LECs to move prices for interstate access services to economically efficient levels, to reduce costs, to invest efficiently in new plant and facilities, and to develop and deploy innovative service offerings” (Price Cap Performance Review for Local Exchange Carriers, First Report and Order, CC Docket No. 94-1, 10 FCC Rcd 8961, 8965 (1995)). In order to promote consumer welfare and economic efficiency, ceilings were set on prices that were intended to allow carriers to cover their costs and earn a normal, competitive rate of return ( Sappington and Weisman, 1996). If prices were set too high, consumers would fail to share the benefits of the carriers’ efficiency; if prices were set too low, the return on capital would be insufficient to attract investment into the industry ( Armstrong et al., 1994).

Calculation of the X-factor used in incentive regulation in the form of price caps has a fundamental flaw when it is based on conventional growth accounting total factor productivity analysis. In the preceding analysis, this error is discussed and the appropriate corrective action is indicated. In an example based on the X-factor used for determining the change in the price for local exchange carriers’ interstate access service, it is shown that the appropriate X-factor is about 25 percent greater than that based on conventional growth accounting total factor productivity analysis.