The FCC is spending hundreds of thousands, or perhaps even millions, of dollars, on constructing a computer model to set regulatory prices for the ILECs (incumbent local exchange companies). However, the economic foundation of the model is mis-specified and inappropriate because it does not take account of sunk and irreversible investments in telecommunications networks. The use of this incorrect regulatory approach is likely to cost consumers and businesses billions of dollars in lost consumer welfare due to decreased innovation and incorrect price signals. This outcome is the message of my paper, which seems to have received wide agreement from the conference participants, several of whom are cited here.


Real Option Telecommunication Network Economic Foundation Conference Participant Wide Agreement 
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  1. 1.
    See Affidavit of W. Baumol, J. Ordover, and R. Willig on behalf of AT&T in FCC CC Docket No. 96–98, July 1996. Also see Baumol, William J. and J. Gregory Sidak. 1994. Toward Competition in Local Telephony. Washington, DC: The American Enterprise Institute for Public Policy Research.Google Scholar
  2. 3.
    Samuelson, P.A. and W.D. Nordhaus. 1986. Economics. Boston: McGraw Hill, 12th ed., p. 12, quoting from Keynes, J.M. 1936. The General Theory of Employment, Interest and Money. London: Macmillan.Google Scholar

Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Jerry Hausman
    • 1
  1. 1.Massachusetts Institute of TechnologyUSA

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