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This article evaluates the impact of the introduction of incentive regulation on technology deployment, as evaluated using two technology deployment metrics, among the population of local exchange carriers in the USA between 1988 and 2001. The regulatory schemes are disaggregated into five categories, permitting examination of heterogeneity among regulatory schemes. The results show that the rate of return method and the other intermediate incentive schemes implemented have had a negative impact on technology deployment. Conversely, the introduction of pure price caps schemes had a positive and significant impact on firms’ technology deployment. These results highlight the importance of appropriate incentive compatible mechanism design in motivating firms to adopt the new and important technologies that have been developed.
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Keywords: L43; L51; L96; digital technology; fiber technology; incentive compatible regulation; mechanism design; price caps; public policy; rate of return regulation; technology diffusion; telecommunications regulation; telecommunications sector

Document Type: Research Article

Publication date: March 1, 2016

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