RATE OF RETURN REGULATION AND THE REGULATED FIRM'S CHOICE OF CAPITAL-LABOR RATIO: FURTHER EMPIRICAL EVIDENCE ON THE AVERCH-JOHNSON MODEL.
The purpose of this paper is to present an alternative test of the Averch-Johnson model employing the implicit demand function for the firm's choice of capital and labor production.[1] This procedure permits one to analyze several comparative static properties of the A-J model. In addition to a test...
| Publicado en: | Southern Economic Journal Vol. 42; no. 3; pp. 384 - 399 |
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| Autores principales: | , |
| Formato: | Artículo |
| Publicado: |
Wiley-Blackwell
Jan76
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| Acceso en línea: | Ver este registro en EBSCOhost |
| Sumario: | The purpose of this paper is to present an alternative test of the Averch-Johnson model employing the implicit demand function for the firm's choice of capital and labor production.[1] This procedure permits one to analyze several comparative static properties of the A-J model. In addition to a test of the Averch-Johnson effect, estimation of the derived demand function provides direct tests of the related proportions that the regulated monopolist's capital-labor ratio will increase if the allowed rate of return is decreased (regulation is tightened), and that rising costs of non-base inputs will cause the firm to produce more efficiently. <BR> The purpose of this paper is to present a method and the results of testing several of the comparative static properties of the Averch-Johnson model. The procedure employed is to derive the determinants of the regulated monopolists' capital-labor ratio and to establish their sign restrictions from the comparative static properties of the model. This method permits one to test several propositions associated with rate of return regulation: a) if the firm produces with a capital-labor ratio greater than the cost minimizing one (Averch-Johnson effect); b) if tightening regulation increases the distortion in the firm's choice of productive inputs; and c) if rising costs of non-base inputs causes the firm to produce more efficiently. |
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