Somewhat surprisingly, none of the variables that capture commission characteristics are
statistically significant.
Economic Effects
The presence of the lagged dependent variable as an explanatory variable implies
that the coefficient estimates only measure short-run effects. Furthermore, the coefficient
estimates do not clearly convey the economic significance of the explanatory variables.
Table 2-4 details the effects on UNE rates from a change in an explanatory variable that
lasts two years.36 The effects reported in Table 2-4 are based on the coefficient estimates
in the specification that includes two years of lagged neighbor UNE rates37
According to the estimates, a one-dollar increase in the cost variable on average
leads to a $0.40 increase in the UNE rate two years later. This increase is highly
statistically significant. However, an F-test as to whether a $1 increase in the cost
variable leads to $1 increase in UNE rates is rejected at over a 99% confidence level.
Thus, UNE rates do not perfectly reflect changes in cost (as measured by the available
variable).38
The estimates suggest that UNE rates are significantly affected by changes in the
leader's UNE rate. Figure 2-3 depicts the effect over two years on followers' rates after a
one dollar increase in the leaders' rate and the corresponding 95% confidence interval. As
the figure shows, the average effect after one year is to increase the followers' rate by
36 Long-run effects that are based on permanent changes in the explanatory variable are reported in
Appendix A.
7 The corresponding effects based on the specification that includes one year of lagged neighbor rates are
very similar and are contained in Appendix A.
38 It is worth repeating that the cost variable used here (based mostly on the FCC's cost model) is not
universally considered a valid cost proxy. Thus, while a $1 increase in the cost variable is not realized in
the UNE rate, one could argue that the cost variable overstates TELRIC costs to such a degree that
changes in costs are in fact fully realized in changes in UNE rates.