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An Empirical Test of An Electric Utility Under An Allowable Rate of Return

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  • George J.Y. Hsu
  • Tser-Yieth Chen

Abstract

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.

Suggested Citation

  • George J.Y. Hsu & Tser-Yieth Chen, 1990. "An Empirical Test of An Electric Utility Under An Allowable Rate of Return," The Energy Journal, , vol. 11(3), pages 75-91, July.
    • Handle: RePEc:sae:enejou:v:11:y:1990:i:3:p:75-91
    DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No3-4
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    References listed on IDEAS

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    1. Robert M. Spann, 1974. "Rate of Return Regulation and Efficiency in Production: An Empirical Test of the Averch-Johnson Thesis," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 38-52, Spring.
    2. David P. Baron & Robert A. Taggart Jr., 1977. "A Model of Regulation under Uncertainty and a Test of Regulatory Bias," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 151-167, Spring.
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