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Traditional Telecommunications Networks

The International Handbook of Telecommunications Economics, Volume I

Edited by Gary Madden

This major reference work provides a thorough and up-to-date survey and analysis of recent developments in the economics of telecommunications. The Handbook serves both as a source of reference and technical supplement for the field of telecommunications economics.
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Chapter 3: Telecommunications productivity

Laurits R. Christensen, Philip E. Schoech and Mark E. Meitzen


Laurits R. Christensen, Philip E. Schoech and Mark E. Meitzen INTRODUCTION This chapter presents a survey of total factor productivity (TFP) methods and studies for the telecommunications industry. TFP is the ratio of total output to total input, where total output consists of all the services provided by the industry and total input includes all resources used to provide those services. TFP is widely recognized as a comprehensive measure of productive efficiency. It is also an important component of price cap regulation. TFP growth can arise from a number of sources, including technical change (shifts in the production function), increasing returns to scale or density and market imperfections. Among these market imperfections are non-marginal cost pricing and factor market imperfections due to regulatory constraints, for example, rate of return regulation. The direct approach to measuring TFP is based on explicit measures of output and input. The measures of output and input are based on economic indexing techniques and, therefore, this approach is referred to as the indexing method. Complementing the indexing method is econometric cost analysis. By estimating the cost function, one can obtain estimates of the sources of TFP growth. In addition to the direct approach to measuring TFP, there have been some studies employing an indirect approach, which focuses on trends in output prices. This chapter is organized as follows. In the next section, we discuss methodological issues in measuring TFP. Next, we survey empirical studies of TFP for the telecommunications industry. We then examine the relationship...

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