A Frontier Approach to Testing the Averch-Johnson Hypothesis
The mathematical programming technique Data Envelopment Analysis is used to test the famous hypothesis of Averch and Johnson that utility regulation leads to overuse of capital because the regulated firm earns a return s greater than its cost of capital r, an implicit capital subsidy resulting in allocative inefficiency. Technical and allocative inefficiency are based on cost and production frontiers from 337 electric generating plants using 1970 data, and r is based on the Capital Asset Pricing Model. Significant capital overuse and general failure to minimize costs is detected, but a second-step regression analysis finds no relationship between the overuse and the s-r subsidy. A small updated data set covering the period 1980-2004 suggests that overuse of capital is no longer a problem, a result that may be owing to recente deregulation and restructuring.
Volume (Year): 16 (2009)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/CIJB20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/CIJB20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas G. Cowing & V. Kerry Smith, 1978. "The Estimation of a Production Technology: A Survey of Econometric Analyses of Steam-Electric Generation," Land Economics, University of Wisconsin Press, vol. 54(2), pages 156-186.
- Ray,Subhash C., 2012.
"Data Envelopment Analysis,"
Cambridge University Press, number 9781107405264, March.
- Ray,Subhash C., 2004. "Data Envelopment Analysis," Cambridge Books, Cambridge University Press, number 9780521802567, March.
- R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
- Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
- Leon Courville, 1974. "Regulation and Efficiency in the Electric Utility Industry," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 53-74, Spring. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:taf:ijecbs:v:16:y:2009:i:3:p:347-363. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.