 An Empirical Test of Regulatory EffectsH. Craig Petersen Bell Journal of Economics, 1975, vol. 6, issue 1, 111-126 Abstract: Averch and Johnson have provided analytical support for the assertion that rate of return regulation causes insufficient production because of the overuse of capital. Empirical evidence in support or refutation of their thesis is just beginning to appear. This paper provides additional evidence. The regulated firm's objective is stated in terms of cost minimization subject to a regulatory constraint. The effect of changes in the allowed rate of return on capital are evaluated. It is shown that as the allowed return approaches the cost of capital, costs increase and the percentage of total costs paid to capital also increases. These are testable implications of the revised A-J model. Data on costs, input prices, and output are collected for electric power production. Three measures of regulatory policy with regard to the allowed return are formulated. Econometric analysis suggests that lower allowed rates of return are significantly associated with higher costs and larger proportions of cost going to capital. These findings are consistent with the revised A-J model and with those of other recent investigators. Date: 1975 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:rje:bellje:v:6:y:1975:i:spring:p:111-126 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Bell Journal of Economics from The RAND Corporation |
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