An Empirical Test of Regulatory Effects
AbstractAverch and Johnson have provided analytical support for the assertion that rate of return regulation causes insufficient production because of the overuse of capital. Empirical evidence in support or refutation of their thesis is just beginning to appear. This paper provides additional evidence. The regulated firm's objective is stated in terms of cost minimization subject to a regulatory constraint. The effect of changes in the allowed rate of return on capital are evaluated. It is shown that as the allowed return approaches the cost of capital, costs increase and the percentage of total costs paid to capital also increases. These are testable implications of the revised A-J model. Data on costs, input prices, and output are collected for electric power production. Three measures of regulatory policy with regard to the allowed return are formulated. Econometric analysis suggests that lower allowed rates of return are significantly associated with higher costs and larger proportions of cost going to capital. These findings are consistent with the revised A-J model and with those of other recent investigators.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by The RAND Corporation in its journal Bell Journal of Economics.
Volume (Year): 6 (1975)
Issue (Month): 1 (Spring)
Contact details of provider:
Web page: http://www.rje.org
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2005.
"Regulation And Investment,"
Journal of the European Economic Association,
MIT Press, vol. 3(4), pages 791-825, 06.
- Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2002. "Regulation and Investment," Boston College Working Papers in Economics 549, Boston College Department of Economics.
- Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2003. "Regulation and Investment," OECD Economics Department Working Papers 352, OECD Publishing.
- Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2003. "Regulation and Investment," NBER Working Papers 9560, National Bureau of Economic Research, Inc.
- Alesina, Alberto F & Ardagna, Silvia & Nicoletti, Giorgio & Schiantarelli, Fabio, 2003. "Regulation and Investment," CEPR Discussion Papers 3851, C.E.P.R. Discussion Papers.
- Nicoletti, Giuseppe & Ardagna, Silvia & Alesina, Alberto & Schiantarelli, Fabio, 2005. "Regulation and Investment," Scholarly Articles 2579825, Harvard University Department of Economics.
- Halkos, George & Tzeremes, Nickolaos, 2011. "A conditional full frontier approach for investigating the Averch-Johnson effect," MPRA Paper 35491, University Library of Munich, Germany.
- Lynk, E. L., 1995. "Testing efficiency in intermediate regulated industries," Economics Letters, Elsevier, vol. 49(3), pages 323-328, September.
- 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.
- 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.
- Earl A. Thompson, 1977. "An Economic Basis for the "National Defense Argument" for Protecting Certain Industries," UCLA Economics Working Papers 084, UCLA Department of Economics.
- 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.
- Gerald Granderson, 2000. "Regulation, Open-Access Transportation, and Productive Efficiency," Review of Industrial Organization, Springer, vol. 16(3), pages 251-266, May.
- 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.
- Ramos-Real, Francisco Javier, 2005. "Cost functions and the electric utility industry. A contribution to the debate on deregulation," Energy Policy, Elsevier, vol. 33(1), pages 69-87, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.