An examination of the equilibrium specification and structure of production for Canadian telecommunications

Multiple‐output models of Canadian telecommunications production are estimated under different production equilibria. A specification test is conducted between the short‐ and long‐run equilibrium models and the long‐run equilibrium is rejected. In order to capture the nature of the disequilibrium, a dynamic cost of adjustment model is estimated for Bell Canada. There are significant adjustment costs and it is estimated that for $1.00 of marginal capital costs the carrier must incur an additional cost of $0.30 to install the new capital into the production process.