IDEAS home Printed from https://ideas.repec.org/a/taf/ijecbs/v16y2009i3p347-363.html
   My bibliography  Save this article

A Frontier Approach to Testing the Averch-Johnson Hypothesis

Author

Listed:
  • Donald Vitaliano
  • Gregory Stella

Abstract

The mathematical programming technique Data Envelopment Analysis is used to test the famous hypothesis of Averch and Johnson that utility regulation leads to overuse of capital because the regulated firm earns a return s greater than its cost of capital r, an implicit capital subsidy resulting in allocative inefficiency. Technical and allocative inefficiency are based on cost and production frontiers from 337 electric generating plants using 1970 data, and r is based on the Capital Asset Pricing Model. Significant capital overuse and general failure to minimize costs is detected, but a second-step regression analysis finds no relationship between the overuse and the s-r subsidy. A small updated data set covering the period 1980-2004 suggests that overuse of capital is no longer a problem, a result that may be owing to recente deregulation and restructuring.

Suggested Citation

  • Donald Vitaliano & Gregory Stella, 2009. "A Frontier Approach to Testing the Averch-Johnson Hypothesis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 16(3), pages 347-363.
    • Handle: RePEc:taf:ijecbs:v:16:y:2009:i:3:p:347-363
    DOI: 10.1080/13571510903227031
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/10.1080/13571510903227031
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13571510903227031?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Tim Coelli & Antonio Estache & Sergio Perelman & Lourdes Trujillo, 2003. "A Primer on Efficiency Measurement for Utilities and Transport Regulators," World Bank Publications - Books, The World Bank Group, number 15149.
    2. Melville J. Ulmer, 1960. "Appendices and Index to "Capital in Transportation, Communications, and Public Utilities: Its Formation and Financing"," NBER Chapters, in: Capital in Transportation, Communications, and Public Utilities: Its Formation and Financing, pages 203-548, National Bureau of Economic Research, Inc.
    3. Melville J. Ulmer, 1960. "Capital in Transportation, Communications, and Public Utilities: Its Formation and Financing," NBER Books, National Bureau of Economic Research, Inc, number ulme60-1.
    4. Melville J. Ulmer, 1960. "Preface and Table of contents to "Capital in Transportation, Communications, and Public Utilities: Its Formation and Financing"," NBER Chapters, in: Capital in Transportation, Communications, and Public Utilities: Its Formation and Financing, pages -23, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rode, David C. & Fischbeck, Paul S., 2019. "Regulated equity returns: A puzzle," Energy Policy, Elsevier, vol. 133(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robert E. Gallman, 1986. "The United States Capital Stock in the Nineteenth Century," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 165-214, National Bureau of Economic Research, Inc.
    2. Alan Green, 1986. "Growth and Productivity Change in the Canadian Railway Sector, 1871-1926," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 779-818, National Bureau of Economic Research, Inc.
    3. William J. Hausman & John L. Neufeld, 2011. "How politics, economics, and institutions shaped electric utility regulation in the United States: 1879--2009," Business History, Taylor & Francis Journals, vol. 53(5), pages 723-746, August.
    4. Albert Ando, 1964. "An Empirical Model of United States Economic Growth: An Exploratory Study in Applied Capital Theory," NBER Chapters, in: Models of Income Determination, pages 327-379, National Bureau of Economic Research, Inc.
    5. John Lintner, 1972. "Finance and Capital Markets," NBER Chapters, in: Economic Research: Retrospect and Prospect, Volume 2, Finance and Capital Markets, pages 1-53, National Bureau of Economic Research, Inc.
    6. Richard Easterlin, 1965. "Long swings in u.s. demographic and economic growth: some findings on the historical pattern," Demography, Springer;Population Association of America (PAA), vol. 2(1), pages 490-507, March.
    7. Mariani Abdul-Majid & David Saal & Giuliana Battisti, 2011. "The impact of Islamic banking on the cost efficiency and productivity change of Malaysian commercial banks," Applied Economics, Taylor & Francis Journals, vol. 43(16), pages 2033-2054.
    8. Mehdi Farsi & Aurelio Fetz & Massimo Filippini, 2007. "Benchmarking and Regulation in the Electricity Distribution Sector," CEPE Working paper series 07-54, CEPE Center for Energy Policy and Economics, ETH Zurich.
    9. Luc Baumstark & Claude Ménard & William Roy & Anne Yvrande-Billon, 2005. "Modes de gestion et efficience des opérateurs dans le secteur des transports urbains de personnes," Post-Print halshs-00103116, HAL.
    10. Walter, Matthias & Cullmann, Astrid & von Hirschhausen, Christian & Wand, Robert & Zschille, Michael, 2009. "Quo vadis efficiency analysis of water distribution? A comparative literature review," Utilities Policy, Elsevier, vol. 17(3-4), pages 225-232, September.
    11. Kumbhakar, Subal C. & Wang, Hung-Jen, 2006. "Pitfalls in the estimation of a cost function that ignores allocative inefficiency: A Monte Carlo analysis," Journal of Econometrics, Elsevier, vol. 134(2), pages 317-340, October.
    12. Anne-Kathrin Last & Heike Wetzel, 2009. "Effizienzmessverfahren – eine Einführung," Working Paper Series in Economics 145, University of Lüneburg, Institute of Economics.
    13. C. P. Barros & O. H. dos S. Figueiredo & Silvestre Dumbo, 2016. "A performance assessment of the Angolan soccer league," Applied Economics, Taylor & Francis Journals, vol. 48(29), pages 2711-2720, June.
    14. Sangeeta Bansal & Massimo Filippini & Suchita Srinivasan, 2023. "How Regulation Might Fail to Reduce Energy Consumption While Still Stimulating Total Factor Productivity Growth," CER-ETH Economics working paper series 23/379, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    15. Latruffe, Laure & Bravo-Ureta, Boris E. & Moreira, Victor H. & Desjeux, Yann & Dupraz, Pierre, 2011. "Productivity and Subsidies in European Union Countries: An Analysis for Dairy Farms Using Input Distance Frontiers," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114396, European Association of Agricultural Economists.
    16. Barros, Carlos Pestana & Wanke, Peter, 2015. "An analysis of African airlines efficiency with two-stage TOPSIS and neural networks," Journal of Air Transport Management, Elsevier, vol. 44, pages 90-102.
    17. Paul Rouse & Robert Swales, 2006. "Pricing public health care services using DEA: Methodology versus politics," Annals of Operations Research, Springer, vol. 145(1), pages 265-280, July.
    18. N�stor A. Le Clech & Carmen Fillat Castej�n, 2017. "Productivity, efficiency and technical change in world agriculture: a f�re-primont index approach," Documentos de Trabajo dt2017-09, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
    19. Lin, Chen, 2005. "Service quality and prospects for benchmarking: Evidence from the Peru water sector," Utilities Policy, Elsevier, vol. 13(3), pages 230-239, September.
    20. Anthony J. Glass & Karligash Kenjegalieva & Robin Sickles, 2012. "The Effects of Efficiency and TFP Growth on Nitrogen and Sulphur Emissions in Europe: A Multistage Spatial Analysis," Discussion Paper Series 2012_11, Department of Economics, Loughborough University, revised Oct 2012.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ijecbs:v:16:y:2009:i:3:p:347-363. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/CIJB20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.