A note on the effect of rate-of-return regulation under uncertainty |
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Authors: | Kuo-Ping Chang |
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Affiliation: | (1) Department of Economics, National Tsing Hua University, Kuang Fu Road, 30043 Hsinchu, Taiwan, R.O.C. |
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Abstract: | This paper corrects the errors of Peles and Stein's capital-setting (i.e., capital is ex-ante) model and Das' quantity-setting (i.e., all inputs are ex-ante) model. It also shows that rate-of-return regulated firms always overcapitalize in the quantity-setting case, but may overcapitalize, undercapitalize or produce efficiently in the capital-setting case. |
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