Empirical Evaluation of Regulatory Regimes in
Local Telecommunications Markets

F. Gasmi IDEI, Universite des Sciences Sociales de Toulouse, France
J.J. Laffont IDEI, Universite des Sciences Sociales de Toulouse, France
and W.W. Sharkey Federal Communications Commission,
Washington, D.C., USA

Abstract:

This paper relies on an engineering optimization model of the local
telecommunications exchange network to calibrate the functions
entering various regulatory mechanisms, from both traditional and
modern (incentive) regulation, and evaluate their relative
performances.

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 performances to the
cost of public funds.