roughly $0.60, while after two years, the effect reaches almost $0.80. Table 2-4 reports
that a one standard deviation ($3.37) in the leader's rate leads to a $2.47 increase in the
followers' rates. Conversely, the estimates suggest that the effect of followers' rates on
other followers is not statistically significant. Thus, the results suggest that the leader
states do in fact have a significant impact on the other states in the incumbent's region.39
Of the variables that capture characteristics of the state utility commission, the
effect of average tenure has the expected sign, but is not statistically significant. In
regards to political ideology, neither the effects of the ideology of the commissioners nor
the ideology of the commissioners interacted with the ideology of the governor are
statistically significant. This may be due to the potentially conflicting effects described
above. The effect of the rate-of-return retail rate regulation variable is positive as
expected but statistically insignificant and only a third of the effect found by Lehman and
Weisman (2000). The lack of statistical significance and smaller estimated effect may be
due in part to the evolving nature of incentive regulation plans and the difficulty in
classifying them (as noted above). Furthermore, the average retail rate also is statistically
insignificant. Finally, while the AT&T arbitration rate has the expected sign, it too is not
statistically significant.
However, the election of a Republican governor is associated with a $1.15 increase
in UNE rates two years later that is statistically significant. One may attribute this effect
39 The estimate of the effect of the followers' rate on the leader's rate is somewhat surprising. While it is
only roughly two-fifths of the size of the leader's effect on the followers, it is statistically significant at a
90% confidence level. From the coefficient estimates, it appears this effect exists four quarters after the
followers change their rates. A possible explanation is that there is a feedback effect. For example, if
rates are generally falling, the following pattern may be present: The leader lowers its rate, which is
followed six months later by the followers. One year after the followers' rate change, the leader again
lowers its rate again, which causes the leader's rate to appear to be influenced by the followers' rate
change. Also, given that the coefficient estimates of the effect of the followers' rates on the leaders are
not statistically significant, the statistical significance of the overall effect is being driven largely by
covariance between the coefficients on the followers' rates and the lagged dependent variable.