Discussion Papers

Wolfgang Elsenbast

Produktivitätserfassung in der Price-Cap-Regulierung. Perspektiven für die Preisregulierung der Deutschen Post AG
Nr. 192 / März 1999

Summary

In principle, the X-factor in the price-cap-formula of Deutsche Post AG can be determined in different ways. The regulation practise in other countries applying a price-cap regime shows taht the value of the X-factor is simply set between 0% and 1%. This approach can to be problematic since it is open to regulatory capture because the regulated firm has a better knowledge about its productivity frontier. Hence, more analytical methods seem to be preferable. Interesting alternatives can be seen in (i) econometric studies on the development of total factor productivity and (ii) the development of well specified and transparent schemes for the calculation of the future growth of total factor productivity.

Detailed studies about the development of the total factor productivity can be found in the United States. In econometric studies total factor productivity growth is calculated between 0,4% and 0,5% per year. Therefore, it may be expected that the values set in the regulatory process are acceptable. But it has to be taken into account that the regulated firm has the possibility to influence the measured development of the factor productivity endogenously. Furthermore, the efficiency of the regulated firm is unknown. In addition, demand as well as postal networks are different. Therefore, the values calculated can not be used without further consideration. These critics came up in the regulation of Telecoms and influenced the price regulation of British Telecom. Oftel, the regulator in the United Kingdom, therefore developed a financial model which can be characterised as a scheme for forecasting the future development of the total factor productivity in a more transparent way, safeguarding that the regulated firm is able to reach a market rate of return on capital employed.

Analytical models for the calculation of the X-factor can improve the process of price regulation. Of course, the calculations have to be protected against opportunistic behaviour. In general, it can be recognised, that an analytical way of determination should be preferred especially in more dynamic industries, e.g. in industries with larger possibilities of total factor productivity growth. If the expected growth is low the principal differences between econometric calculations and calculations potentially made by the use of financial models seems to be rather low. Hence, if econometric studies already exist they can be used without further research. If they are not existing the regulator tends to set a value which seems to be more or less appropriate. This process may explain the recent regulatory policy.

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