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Valuation Models in Regulation

Author

Listed:
  • Blaine E. Davis
  • F.T. Sparrow

Abstract

This paper surveys and critiques the financial models of the firm used in rate of return regulation. The increasingly wide assortment of models used in rate of return cases might appear to promise a rich classification of contrasting assumptions and a diverse catalogue of model constructs. Nothing could be further from the findings of this paper. It is shown that all models considered have assumed either explicitly or implicitly the financial market conditions used in the development of the original Modigliani and Miller (M-M) model of 1961. Thus, the consequences, criticisms, and attributes of the Modigliani-Miller financial world seem to represent the current state of rate of return modeling.

Suggested Citation

  • Blaine E. Davis & F.T. Sparrow, 1972. "Valuation Models in Regulation," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 544-567, Autumn.
  • Handle: RePEc:rje:bellje:v:3:y:1972:i:autumn:p:544-567
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    Cited by:

    1. repec:vuw:vuwscr:18978 is not listed on IDEAS
    2. Evans, Lewis & Guthrie, Graeme, 2003. "Asset Stranding is Inevitable: Implications for Optimal Regulatory Design," Working Paper Series 18978, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. Evans, Lewis & Guthrie, Graeme, 2003. "Asset Stranding is Inevitable: Implications for Optimal Regulatory Design," Working Paper Series 3881, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    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.

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