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Rate Of Return Regulation: An Indirect Approach

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  • Wan Sulaiman Wan Yusoff

Abstract

This paper proposes an indirect method to the "Rate of Return Regulation" (ROR) or "Cost Based Regulation," by imposing ROR on monopoly firms through tax instruments, i.e., ad-valorem tax and consumption tax. The main objective in undertaking this theoretical study of industrial economics is to investigate and compare the results of direct with indirect methods concerning the social cost of monopoly and monopoly distortions or "overcapitalization." The finding shows that the indirect method not only would not involve an inefficient allocation of resources but it is also much more demanding than the direct method in terms of government's information requirements and even increases the monopoly output higher than the level reached by direct regulation. This is relevant in the implementation of regulated firms especially in the period after privatization.

Suggested Citation

  • Wan Sulaiman Wan Yusoff, 1999. "Rate Of Return Regulation: An Indirect Approach," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 7(2), pages 51-72, December.
    • Handle: RePEc:ije:journl:v:7:y:1999:i:2:p:51-72
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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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