Price Caps and Incentive Regulation in Telecommunications

1. Front Matter

   Pages i-xi

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2. Introduction

   • Michael A. Einhorn

   Pages 1-14

3. A Non-Bayesian Incentive Mechanism Using Two-Part Tariffs

   • Ingo Vogelsang

   Pages 15-31

4. Regulating by Capping Prices

   • Timothy J. Brennan

   Pages 33-45

5. Information, Incentives, and Commitment in Regulatory Mechanisms: Regulatory Innovation in Telecommunications

   • David P. Baron

   Pages 47-75

6. Productivity and Price Caps in Telecommunications

   • John E. Kwoka Jr.

   Pages 77-93

7. Constant and Variable Productivity Adjustments for Price-Cap Regulation

   • Ferenc Kiss

   Pages 95-126

8. A Sequential Mechanism for Direct Price Regulation

   • Peter B. Linhart, Roy Radner, Frank W. Sinden

   Pages 127-153

9. Incentives for Cost Reduction under Price Cap Regulation

   • Luis M. B. Cabral, Michael H. Riordan

   Pages 155-165

10. The Quality of Regulation in Regulating Quality

    • Eli M. Noam

    Pages 167-189

11. Optional Tariffs for Access under the FCC’s Price-Cap Proposal

    • David S. Sibley, Daniel P. Heyman, William E. Taylor

    Pages 191-206

12. Optional Calling Plans and Bypass Efficiency

    • Michael A. Einhorn

    Pages 207-220

13. Pricing and Investment Incentives under Price Ceiling Regulation

    • Calvin S. Monson, Alexander C. Larson

    Pages 221-237

14. Back Matter

    Pages 239-244

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Michael A. Einhorn In continuing to deregulate telecommunications companies, regulators have begun to consider alternative approaches to traditional cost-based price regulation as a means of encouraging monopoly efficiency, promulgating technological innova­ tion, protecting consumers, and reducing administrative costs. Under cost-based regulatory procedures that had been used, prices were designed to recover the regulated company's costs plus an allowed rate of return on its rate base; this strategy was costly to administer, provided no consistent incentives to cost-ef­ ficiency and technological improvement, afforded many opportunities for strategic misrepresentation of reported costs, and may have encouraged both uneconomic expansion of the utility's rate base and cross-subsidization of its competitive services. A category of alternative regulatory approaches can be classified broadly as social contracts. Under the general strategy of social contract regulation, regulators first delimit a group of regulated core services that they continue to regulate and then stipulate a list of constraints that the utility must agree to meet in the future; in exchange, regulators agree to detariff or deregulate entirely other competitive or nonessential services that the utility may offer. As long as no stipulated constraints are violated, the utility may price freely any service; if it reduces costs, it may keep a share of its profits. According to the National Telecommunications Information Administration (NTIA, 1987), social contract agreements of one form or another have been considered or implemented in a majority of American states.

• efficiency
• innovation
• regulation
• research

'This book is a fine source of materials on price-caps and incentive regulation. It is highly topical and should appeal to anyone, especially economists, interested in the telecommunications industry. In addittion, it would make an excellent supplement text to any graduate-level course on regiulation.' Int. J. General Systems 20 1992

• Rutgers University, Newark, USA

  Michael A. Einhorn

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