Telephone Communications in Canada: Demand, Production, and Investment Decisions
Volume: Volume 3, No. 1
Issue: Spring 1972
Pages: pp. 175-219
Authors: A. Rodney Dobell, Lester D. Taylor, Leonard Waverman, Tsuang-Hua Liu, Michael D. G. Copeland
Title: Telephone Communications in Canada: Demand, Production, and Investment Decisions
Abstract: This paper presents a portion of an econometric model of the telecommunications industry in Canada, specifically dealing with demand, production, and investment decisions in the telephone sector. Following an introductory sketch of the structure of the sector is an analysis of demand for service, broken down where possible into business and residence, local and toll, categories. Estimation follows the procedures established by Houthakker and Taylor; the results suggest the presence of significant elements of habit formation with high income elasticities in all classes of demand for service, but indicate a substantial degree of price elasticity only in household demand for toll service.
Analysis of production conditions includes estimation of production, input requirements, and productivity functions for one dominant firm (Bell Canada) and cross section estimates for the several members of the Trans-Canada Telephone System together. A Cobb-Douglas production function is found to provide a satisfactory fit to the statistical aggregates representing output and factor inputs, when a suitable proxy for technical change is included.
In the analysis of capital outlays, a straightforward lagged accelerator model is selected and yields a plausible pattern of response to changes in output levels.
The relationships estimated in this paper thus provide a consistent structure for that portion of an econometric industry model which links demand back to the factor inputs necessary to meet that demand and thence to the employment and investment decisions necessary to provide those inputs.