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The Averch and Johnson Proposition: A Critical Analysis

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  • Gordon R. Corey

Abstract

The central thesis under consideration is the proposition by Messrs. Harvey Averch and Leland L. Johnson that "if the rate of return allowed by the regulatory agency is greater than the cost of capital but is less than the rate of return that would be enjoyed by the firm were it free to maximize profit without regulatory restraint, then the firm will substitute capital for the other factor of production and operate at an output where cost is not minimized."

Suggested Citation

  • Gordon R. Corey, 1971. "The Averch and Johnson Proposition: A Critical Analysis," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 358-373, Spring.
    • Handle: RePEc:rje:bellje:v:2:y:1971:i:spring:p:358-373
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    Cited by:

    1. 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.
    2. Milton Russell & Robert Shelton, 1974. "A model of regulatory agency behavior," Public Choice, Springer, vol. 20(1), pages 47-62, December.
    3. 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.

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