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The Comparative Statics Properties of the Theory of the Regulated Firm

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  • David L. McNicol

Abstract

This paper presents an analysis of the comparative statics properties of the theory of the regulated firm. It is assumed that the firm either maximizes profit, subject to regulatory constraint, or maximizes revenue, subject to regulatory constraint and a profit constraint. The question asked in each case is whether there are comparative statics properties which distinguish effective from ineffective regulation. Several properties which do so are identified. In particular, the firm's derived demands are found to have some very striking properties. It is shown that if the regulatory constraint is effective, then at given output the firm's demand for capital decreases while its demand for labor increases with increases in the wage rate. These peculiar properties also occur in some cases when the regulatory constraint is not binding if revenue is maximized. However, there prove to be properties which conclusively distinguish revenue maximization from profit maximization.

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  • David L. McNicol, 1973. "The Comparative Statics Properties of the Theory of the Regulated Firm," Bell Journal of Economics, The RAND Corporation, vol. 4(2), pages 428-453, Autumn.
    • Handle: RePEc:rje:bellje:v:4:y:1973:i:autumn:p:428-453
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    Cited by:

    1. Louis Alessi, 1974. "Aneconomic analysis of government ownership and reculation," Public Choice, Springer, vol. 19(1), pages 1-42, September.
    2. repec:ebl:ecbull:v:12:y:2002:i:10:p:1-9 is not listed on IDEAS
    3. Mirucki, Jean, 1980. "Vérification des conditions d'efficacité dans la production chez Bell Canada [Checking the conditions of efficient production in Bell Canada]," MPRA Paper 30147, University Library of Munich, Germany, revised Jun 1980.
    4. Mirucki, Jean, 1980. "Comportement de l'entreprise réglementée: étude de l'hypothèse Averch-Johnson [Behavior of the Regulated Firm: A Study of the Averch-Johnson Hypothesis]," MPRA Paper 27669, University Library of Munich, Germany, revised 1982.
    5. Baffoe-Bonnie, John, 2004. "Learning-by-doing and input demand of a rate-of-return regulated firm," Economic Modelling, Elsevier, vol. 21(6), pages 1015-1037, December.
    6. Mary H. Acker, 1985. "Assessing the Impact of Regulation of Trucking Firms," Eastern Economic Journal, Eastern Economic Association, vol. 11(2), pages 135-143, Apr-Jun.

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