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Factor Demands, Cost Functions, and Technology Measurements for Regulated Firms


  • Pierre Lasserre
  • Pierre Ouellette


In this paper, the authors provide some missing elements to the theory of the regulated firm and discuss implications for econometric specification. Particular attention is paid to situations where capital is quasi-fixed under rate-of-return regulation, which may lead to serious specification and interpretation errors if the current theoretical basis is not adjusted. The authors also extend the analysis to arbitrary types of regulation and indicate precisely how the differential of factor demands can be specified and what regularity conditions it must satisfy. The exact formula for the calculation of marginal products, returns to scale, and technological change are derived.

Suggested Citation

  • Pierre Lasserre & Pierre Ouellette, 1994. "Factor Demands, Cost Functions, and Technology Measurements for Regulated Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 218-242, February.
  • Handle: RePEc:cje:issued:v:27:y:1994:i:1:p:218-42

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    References listed on IDEAS

    1. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
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    3. Gary S. Fields, 1979. "A Welfare Economic Approach to Growth and Distribution in the Dual Economy," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 325-353.
    4. Banerjee, Biswajit, 1983. "The Role of the Informal Sector in the Migration Process: A Test of Probabilistic Migration Models and Labour Market Segmentation for India," Oxford Economic Papers, Oxford University Press, vol. 35(3), pages 399-422, November.
    5. Jonathan Eaton, 1987. "A Dynamic Specific-Factors Model of International Trade," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 325-338.
    6. Braulke, Michael, 1983. "A Note on Kuznets' U," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 135-139, February.
    7. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
    8. Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-1189, December.
    9. Moore, Robert E., 1990. "Measuring inequality change in an economy with income growth : Reassessment," Journal of Development Economics, Elsevier, vol. 32(1), pages 205-210, January.
    10. Papanek, Gustav F. & Kyn, Oldrich, 1986. "The effect on income distribution of development, the growth rate and economic strategy," Journal of Development Economics, Elsevier, vol. 23(1), pages 55-65, September.
    11. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
    12. Knight, J B, 1976. "Explaining Income Distribution in Less Developed Countries: A Framework and an Agenda," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 38(3), pages 161-177, August.
    13. Tidrick, Gene M, 1975. " Wage Spillover and Unemployment in a Wage-Gap Economy: The Jamaican Case," Economic Development and Cultural Change, University of Chicago Press, vol. 23(2), pages 306-324, January.
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    Cited by:

    1. Pierre Ouellette & Stéphane Vigeant, 2006. "A generalized procedure to recover the first derivatives of a production function when the firm is a profit maximizer," Journal of Productivity Analysis, Springer, vol. 26(1), pages 27-33, August.
    2. Pierre Ouellette & Stéphane Vigeant, 2000. "A General Procedure to Recover the Marginal Products of a Cost Minimizing Firm," Journal of Productivity Analysis, Springer, vol. 14(2), pages 143-162, September.
    3. Ouellette, Pierre & Quesnel, Jean-Patrice & Vigeant, Stéphane, 2012. "Measuring returns to scale in DEA models when the firm is regulated," European Journal of Operational Research, Elsevier, vol. 220(2), pages 571-576.
    4. Appelbaum, Elie & Berechman, Joseph, 1991. "Demand conditions, regulation, and the measurement of productivity," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 379-400, February.
    5. Ouellette, Pierre & Petit, Patrick & Tessier-Parent, Louis-Philippe & Vigeant, Stéphane, 2010. "Introducing regulation in the measurement of efficiency, with an application to the Canadian air carriers industry," European Journal of Operational Research, Elsevier, vol. 200(1), pages 216-226, January.
    6. Pierre Ouellette & Stéphane Vigeant, 2001. "Cost and Production Duality: The Case of the Regulated Firm," Journal of Productivity Analysis, Springer, vol. 16(3), pages 203-224, November.

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