X-Factor Updating and Total Factor Productivity Growth: The Case of Peruvian Telecommunications, 1996-2003
30 November 2006
By Dr. Agustin Ros with Dr. Jeffrey Bernstein of the Carleton University Department of Economics, former NERA Associate Director José María Rodríguez, and former NERA Consultant Juan Hernández
Price-cap regulation has become a common approach to regulating the telephone prices of incumbent telecommunications companies and is used in many countries. An important component of implementing a price-cap plan is to calculate the X-factor -- the rate at which average prices for capped services change after adjusting for inflation, thereby preserving incentives for cost reduction. In this article from the Journal of Regulatory Economics, the authors measure the total factor productivity growth of major local exchange carrier Telefonica del Peru, and based on this growth rate, compute an X-factor applicable to the Peruvian telecommunications market.
