The Averch and Johnson Proposition: A Critical Analysis

Gordon R. Corey

Bell Journal of Economics, 1971, vol. 2, issue 1, 358-373

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."

Date: 1971
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