Cross-Subsidies in Telecommunications: Roadblocks on the Road to More Intelligent Telephone Pricing

A decade ago, Alfred Kahn challenged regulators to adopt more efficient telephone pricing policies. They have yet to respond and instead have maintained a system of inefficient cross-subsidies. While some argue that the current system promotes universal telephone service, a careful examination reveals that the cross-subsidies do not further that goal. Professors Kaserman and Mayo argue that regulators maintain the current system because they believe that its pattern of cross-subsidization benefits a politically influential class-local residential customers. Kaserman and Mayo contend, however, that the regulators are wrong. the benefits from the current cross-subsidies are so diffused that abolishing them will not ultimately affect individual customers

Is the “Dominant Firm” Dominant? An Empirical Analysis of AT&T’S Market Power

In this article, we estimate the degree of market power held by AT&T in the interstate long-distance market in the postdivestiture period. Our approach makes use of the dominant firm/competitive fringe model to impose the structure needed both to obtain estimates of the relevant structural parameters and to translate these parameters into an estimate of AT&T\u27s residual demand elasticity and associated Lerner index. Because of the continued presence of regulation and other considerations, however, a direct estimation of the residual demand elasticity is not feasible. Consequently, we take a more indirect approach that combines estimation of the elasticity of fringe firm supply, market demand estimation, and extant market share data to generate estimates of the desired elasticity. The resulting estimates strongly support the conclusion that AT&T lacks significant market power in the postdivestiture long-distance market

Neoclassical theory of durable good diffusion

Existing studies that deal with the diffusion of durable good innovations have been justifiably criticized for their common lack of an explicit testable theory of new product growth. This paper attempts to remedy this situation by providing a theoretical model of market penetration of new durable goods that is derived from the basic assumption that potential users of the new intermediate product attempt to minimize the discounted costs of production over time. The resulting model defines a time path of short-run equilibrium market shares that are determined by the cost characteristics (capital cost and operating and maintenance expenses) of both the new innovation and the equipment that it is designed to replace, the age distribution of the existing capital stock, and the growth rate of the adopting sector. This model is shown to exhibit several attractive features lacking in existing models of the diffusion process. First, it yields a number of testable hypotheses, some of which have received indirect empirical support in previous studies on the subject. Second, it is operational in the absence of historical data on the market experience of the new good under investigation. And third, it is capable of generating, on the basis of such ex ante information, the complete range of functional forms used in prior models to represent the relationship between market share and elapsed time since introduction of the new innovation. These features render the model inherently superior to existing studies for the analysis of emerging products and frontier technologies for which market data are not yet available

Estimating economies of scale and scope with flexible technology

The final publication is available at Springer via http://dx.doi.org/10.1007/s11123-016-0467-1Economies of scope are typically modelled and estimated using a cost function that is common to all firms in an industry irrespective of their type, e.g. whether they specialize in a single output or produce multiple outputs. Instead, we estimate a flexible technology model that allows for type-specific technologies and show how it can be estimated using linear parametric forms including the translog. A common technology remains a special case of our model and is testable econometrically. Our sample, of publicly owned US electric utilities, does not support a common technology for integrated and specialized firms. Our empirical results therefore suggest that assuming a common technology might bias estimates of economies of scale and scope. Thus, how we model the production technology clearly influences the policy conclusions we draw from its characteristics

On the Feasibility of Resolving the Organ Shortage

Debates concerning the feasibility of resolving the organ shortage from the potential pool of deceased donors have suffered from both conceptual and empirical problems. Conceptually, several authors mistakenly have viewed recipient waiting lists as a measure of the magnitude of the shortage. And empirically, the number of deaths that would qualify for potential organ donation has proven difficult to estimate. While the latter problem appears to have been substantially lessened by recent work, the former, definitional, problem remains. This paper offers the economically correct definition of a shortage and applies that definition to the new data on potential supply

“Should we sell human organs?” Correction of a faulty analysis

Purpose – The purpose of this research is to correct the flawed analysis contained in a recent paper by Kolnsberg that appeared in this journal. Design/methodology/approach – In her paper, Kolnsberg raises the extremely important question of whether we should allow the sale of human organs for transplantation. She concludes, mistakenly, that we should not allow such sales. The error that leads her to this incorrect conclusion is the application of a nonsensical criterion for determination of whether sales of a good should be allowed. Specifically, she argues that, if the suppliers of living donor organs will be unable to earn substantial economic profits in the long run, then such sales should be banned. This arbitrary (and erroneous) criterion ignores: the social welfare gains achievable through organ sales; the much greater promise offered by cadaveric donor payments; and the very real and tragic consequences of the current ban on such payments – over 6,000 lives lost unnecessarily each year in the US alone. Findings – The principal finding of the corrected analysis is that, contrary to the conclusion reached by Kolnsberg, paying cadaveric organ donors would save both money and lives. Research limitations/implications – Given the compelling case for cadaveric donor payments, trials need to be conducted to reveal both the magnitude of compensation required to resolve the shortage and the most efficient payment mechanisms. Originality/value – Given the historical failure of the current altruistic organ procurement policy, asserts that a revised system that incorporates organ donor payments is essential to a successful resolution of this shortage.Body systems and organs, Economic value analysis, Transplant surgery