Averch-Johnson thesis and the fair rate of return: an exercise in multiobjective programming

Thesis/Dissertation · Mon Dec 31 23:00:00 EST 1984

OSTI ID:5980450

Eftedkhari, H

The work of Averch and Johnson represents a significant landmark in the theory of regulation. They provided analytical support for the proposition that a monopoly firm subject to rate-of-return regulation may employ an inefficient combination of resources. In this dissertation, a mathematical programming model, namely multiobjective programming, is introduced. It is suggested that reformulation of the original A-J model in terms of this alternative model would improve the decision-making environment of the regulatory agencies. A simplified version of a multiobjective model is then developed to examine the empirical implications of the A-J proposition. A three-input, Hicks-neutral-technical-change, translog production function is adopted for empirical analysis of the production process in the electric-generating industry. The A-J thesis is assumed operative and a log-linear cost is specified in terms of input quantities. By replacing the market cost of capital for the fair-rate-of-return parameter, the fair-rate-to-return constraint is removed from the multiobjective programming model. A series of cost functions, reflecting the cost structure of electric generating units under various market costs of capital, are estimated. These cost functions are minimized subject to some arbitrary levels of production. The results show that there was no factor substitution in the generation of electricity between 1959 and 1963.

• Research Organization: Nebraska Univ., Lincoln (USA)
• OSTI ID: 5980450
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200 -- Energy Planning & Policy-- Economics & Sociology
293000 -- Energy Planning & Policy-- Policy
Legislation
& Regulation
296000* -- Energy Planning & Policy-- Electric Power
CAPITAL
COST
DECISION MAKING
ELECTRIC UTILITIES
INCOME
MATHEMATICAL MODELS
POWER GENERATION
PUBLIC UTILITIES
RATE STRUCTURE
REGULATIONS