This paper examines a utility’s behaviour under the regulatory constraint of a maximum allowable rate of return. The golden rule of production efficiency, i.e. that the marginal productivities of the input factors are equal, is used as our criterion to examine the utility’s economic behaviour. Our case study uses a translog production function to investigate the production efficiency of the Taiwan Power Company. Two null hypotheses are tested with the results obtained supporting the existence of the A-J effect. The implications of the results are discussed, a comparison with previous studies is presented, and suggestions for further research are made.
AtkinsonS. E.HalvorsenR. (1984). “Parametric Efficiency Tests, Economies of Scale, and Input Demand in U.S. Electric Power Generation.” International Economic Review25(3): 647-61.
2.
AverchH.JohnsonL. (1962). “Behaviour of the Firm Under Regulatory Constraint.” American Economic Review52(5): 1052-69.
3.
BaileyE. E.MaloveJ. C. (1970). “Resource Allocation and the Regulated Firm.” Bell Journal of Economics and Management Science1(1): 129-42.
4.
BaronD. P.TaggartRA (1977). “A Model of Regulation Under Uncertainty and a Test of Regulatory Bias.” Bell Journal of Economics8(1): 151-67.
5.
BaumolW. J. (1959). Business Behaviour, Value and Growth. New York: Harcourt, Brace and World.
6.
BaumolW. J.KlevorickA. K. (1970). “Input choices and the Rate of Return Regulation: An Overview of the Discussion.” Bell Journal of Economics and Management Science1(2): 162-90.
7.
BoyesW. J. (1976). “An Empirical Examination of the Averch-Johnson Effect.” Economic Inquiry14(2): 25-35.
8.
BuseA. (1979). “Goodness-of-Fit in the Seemingly Unrelated Regression Model.” Journal of Econometrics10(1): 109-13.
9.
ChristensenL. R.JorgensonD. W.LauL. R. (1973). “Transcendental Logarithmic Production Frontiers.” Review of Economics and Statistics55: 28-45.
10.
CourvilleL. (1974). “Regulation and Efficiency in the Electric Utility Industry.” Bell Journal of Economics5(2): 53-74.
11.
GraybillF. A. (1969). Introduction to Matrices with Applications in Statistics. Belmont, CA: Wadsworth: 290-99.
12.
MayashiP. M. (1976). “Rate of Return Regulation and the Regulated Firm’s Choice of Capital-Labour Ratio: Further Empirical Evidence on the Averch-Johnson Model.” Southern Economic Journal42(1): 384-98.
13.
HsuGeorge J. Y..ChenTser-Yieth (1986). “On Production Efficiency: A Utility’s Behaviour Under a Guaranteed Profit Rate.” Paper Presented at International Workshop on Management Modernization of the Electric Power Industry in ASEAN and Northeast Asia, East-West Center, Honolulu.
14.
JorgensonD. W.StephensonJ. A. (1967). “The Time Structure of Investment Behaviour in U.S. Manufacturing, 1947-60.” Review of Economics and Statistics49(1): 16-27.
15.
JudgeG. G.GriffithsW. E.HillR. C.LeeC. T. (1980). The Theory and Practice of Econometrics. New York: John Wiley.
16.
KlevorickA. K. (1971). “The ’Optimal’ Fair Rate of Return.” Bell Journal of Economics2(1): 122-53.
17.
NelsonR. A.WoharM. E. (1983). “Regulation, Scale Economics, and Productivity in Steam-Electric Generation.” International Economic Review24(1): 57-79.
18.
PescatriceD. R.TrapaniJ. M. (1980). “The Performance and Objectives of Public and Private Utilities Operating in the United States.” Journal of Public Economics 13: 25976.
19.
PetersenH. C. (1975). “An Empirical Test of Regulatory Effects” Bell Journal of Economics6(1): 111-26.
20.
SicklesR. C.GoodD.JohnsonR. L. (1986). “Allocative Distributions and the Regulatory Transition of the U.S. Airline Industry.” Journal of Econometrics33: 143-63.
21.
SmithsonC. W. (1978). “The Degree of Regulation and the Monopoly Firm: Further Empirical Evidence.” Southern Economic Journal 45(2): 568-80.
22.
SpannR. M. (1974). “Rate of Return Regulation and Efficiency in Production: An Empirical Test of the Averch-Johnson Thesis.” Bell Journal of Economics5(1): 38-51.
23.
WallaceT. I. (1968). “A Test of the MSE Criterion for Restriction in Linear Regression.” Journal of American Statistical Association63(332): 558-71.
24.
WilliamsonO. E. (1974). “Managerial Discretion and Business Behaviour.” American Economic Review63(5): 1032-57.
