Competition, Regulation, and Efficiency in Service Industries

IN THIS PAPER I examine the regulatory and competitive environments in which four service industries operate in Europe and Japan, suggesting how certain types of regulation and the lack of adequate competition reduce productivity. I then present estimates of the relative productivities of these industries compared with the United States and suggest that in practice, the differences in the competitive environments of these countries have led to differences in the productivities of the industries. Service sector productivity is important. To some observers the international competitiveness of a country depends solely on the performance of its manufacturing sector. But when the productivity of the United States is compared with that of other countries, the service sector is even more important, because it accounts for a much larger share of output and employment han does manufacturing. Understanding why productivity differences across countries exist in a given industry can reveal policy changes that could enhance economic performance or can strengthen the case for policy changes that have al-