Page 46 81. Tie increase in the size of the network has implied substantial welfare gains for consumers. We can decomposa 'he change in welfare as the sum in the changes in consumer surplus, govemnnent revenue' and fams' profits. Changes in consumer surplus, for each segment - intemational and domesbc - have two sources: first, changes in prices faced by consumers,73 and second, increases in the network.<sup>4</sup> Figures 15 and 16 show that untl 1987, changes in consumer surplus from network expansion were almost always positive, and of the order of J$50 Million (in 1991 J$) per year. Increases in consumer surplus doubled to J$100M for 1988-1990, and in 1991 reached $350M. Figure 15 also shows that until 1987, changes in consumer surplus from network expansion were more or less evenly divided between domestic and intemational services, but following 1987 the great majority of the gains come from intemational services. Figure 17 presents the annual changes in total net surplus, in its division among consumers, govemment and the firms. Through the 1 970s changes in net total n vrnment's revenu, fram indirec taxs is estimated. Government revenu from incme tax Is providd by the companie' annual reports Govwrnmes Income from its shar of the dividends riLstributed byJAMINTEL appeas as put of the changs in the profitabilky of the compnies.

**'** 'his ogta Is simpiy the Skaz oyfec, and can be computed as -hPO. where aP refiect the ineroe in rea price from year to year. and 0 refes the previous yeaes quantity.

|**'4**BeAUse<br>JanIai<br>an upwad shift inthede<br>of lnes increases<br>tota<br>demand)<br>by the chang<br>per line. We estimate<br>estimated<br>equations.<br>co|cns' accoss<br>tothe toelo<br>mnd curve for the net<br>consumer<br>surplus by th<br>e in the number of lines t<br>d<br>log liner inwrso de<br>rrecting<br>for serial corre<br>|hone network is consrained by the availability of ties, increaseshilinesrepents<br>work. Consequently.<br>holWing<br>constat the quantty of calls anincrease<br>inthenumber<br>e are under the twocurves.This rea can be approxmated<br>(assuming<br>a linear<br>imes theeolsticyof the inverse demandforthe senrice times the enrage revenue<br>mands tor both domesic and internotional<br>services lor the period 197211991.<br>The<br>laion, are s_fllow_<br>|
|---|---|---|
||Log<br>Irnt Pric|Log<br>Domesic Prkc|
|Constant|-10_A2_<br>(4.96)|8.75<br>(43|
|Log ReWi tIl|-.64||
|Output|(24)||
|Log Real Domesi|-|-2.01|
|Output||(.29)|
|Log ines|1.75<br>(.58)|1.43<br>.52)|
|Trend (Post 1980)|-.007|-.008|
||(.02)|(-.01)|

Stndard erors in parerethe We use these estimated oquatons compute the gains frorn changes in the number of lines from domestc and intmational service. Obsme that wo estimate the demand for international services to be mwre elasi than the demnd for domestic srnves. There _w_ two reasos trthis first the growth in demand for intrnational communications by households increased since 19799 Swend. and mor importw0y. Is the way irtemationa and domestie calls - charged Whie international cals - charged by the minute, the pricing system for local eals difets across meas Jamaia with most households paying morthty ft service ees, plus ihteciy toi dcarges Ma consequence, unless substantial toll ails _ae_ made, the measured easticity of the domestic demand woLid be woer than that for intrnational searvie