A Note on the Effect of Rate-of-Return Regulation under Uncertainty

Kuo-Ping Chang

Journal of Regulatory Economics, 1991, vol. 3, issue 4, 349-55

Abstract: This paper corrects the errors of Peles and Stein's capital-setting (i.e., capital is ex-ante) model and Das' quantity-setting (i.e., all inputs are ex-ante) model. It also shows that rate-of-return regulated firms always overcapitalize in the quantity-setting case, but may overcapitalize, undercapitalize, or produce efficiently in the capital-setting case. Copyright 1991 by Kluwer Academic Publishers

Date: 1991
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