an analysis of interfirm cooperation theory and evidence from electric power pools this paper develops and tests a model for analyzing the extent to which an individual utility participates in a power pool it incorporates the benefits and costs of pool membership in a profit maximization model of an individual utility the study finds that coordination reflects the benefits and costs the degree to which other utilities are committed to the pool and the utility s behavior toward other utilities the results show that large firms are reluctant to pool with small firms and the us pools tend to be loosely coordinated policy implications are that regulatory commissions can be instrumental in coordination efforts and that interstate cooperation among regulatory authorities is needed to encourage pooling and obtain regional solutions to regional problems it is also important to reduce the transactional costs of pooling wherever possible 37 references 3 figures 1 table

measuring returns to scale in dea models when the firm is regulated in the standard framework of data envelopment analysis dea models the returns to scale are fully characterized using the multiplier on the convexity constraint of inefficient decision making units dmu using the projection of the input output vector on the frontier in this note we investigate how the returns to scale measurements in dea models are affected by the presence of regulatory constraints these additional constraints change the role played by the convexity constraint in order to avoid biased estimation of the returns to scale we show that the interaction between the regulatory and the convexity constraints has to be taken into account

the impact of regulation on technical change input based regulation restricts a firm s input choices to a subset of those that characterize the production technology the averch johnson hereafter a j 1962 hypothesis states that rate of return regulation affects a firm s input demands for producing its selected output level given that firms can select the level of innovations in inputs through research and development rate regulation can also impact a firm s selection of innovations among inputs regulation s influence on the choice of innovations also impacts the rate at which technical change occurs in an industry the a j hypothesis has been examined extensively in the literature the impact of regulation on technical change has received less attention in the literature and is the focus of this paper the subject matter is of some importance in that regulation via the a j hypothesis leads to higher production costs regulation s impact on a firm s selection of innovations can magnify or dampen the rate at which technical change occurs a magnification dampening of the rate of technical change leads to lower higher production costs in addition to regulation s impact on input demands regulation s impact on the rate of technical change can lead to small or large changes in prices for consumers regulators can use the information on regulation and technical change to evaluate the effectiveness of policies aimed at enhancing technical change by how much do the policies affect production costs and how much would consumer prices change due to the policies regulators can also use the information to predict the impact deregulation would have on consumer prices both regulators and consumers can attempt to determine the amount by which consumer prices would change under deregulation smith 1974 and okuguchi 1975 examined the impact of regulation on a firm s choice of innovations they showed theoretically that regulation can alter a firm s choice of innovations

household electricity demand revisited respond to price changes this paper develops a model for evaluating the effects of alternative tariff designs on electricity use the model concurrently addresses several interrelated difficulties posed by nonlinear pricing heterogeneity in consumer price sensitivity and consumption aggregation over appliances and time we estimate the model using extensive data for a representative sample of 1300 california households the results imply a strikingly skewed distribution of household electricity price elasticities in the population with a small fraction of households accounting for most aggregate demand response we then estimate the aggregate and distributional consequences of recent tariff structure changes recent efforts to restructure electricity markets have renewed interest in electricity demand and pricing this interest reflects a broad desire to improve the efficiency of electricity markets and policy makers concerns over the impact of price changes on consumers how new pricing mechanisms would affect households consumption and expenditures is a matter of considerable uncertainty however this uncertainty has provoked controversy and debate in the regulatory policy arena hampering market reforms using econometric methods to assess the effects of electricity price changes presents several challenges these include the nonlinear structure of tariff schedules aggregation of metered consumption behaviour over time and appliances and the interdependence of energy use with longer term household decisions over appliance ownership and dwelling characteristics the first two issues introduce complex simultaneity problems between marginal prices and consumption the third issue imposes high data requirements information on household specific appliance holdings and residence features and creates heterogeneity in consumption responses related to the characteristics of these durable goods when the researcher s objective is to develop a model for simulating the effects of prospective tariff changes ignoring these issues will provide an incomplete assessment of demand responses and potentially misleading predictions of a new tariff s consumption and revenue consequences in this paper we estimate a model of household electricity demand that can be used

effects of regulation and capital market imperfections on the dynamic behavior of a firm the well known result in the theory of a regulated firm known as the averch johnson effect is that a profit maximizing firm subject to rate of return regulation uses an inefficiently high capital labor ratio to produce its chosen level of output numerous contributions in the literature have been instrumental in clarifying the implications and generalizing the model 1 these contributions however have been mostly couched within a static framework few attempts have been made to investigate the effect of rate of return regulation on the dynamic behavior of the firm in particular its investment plans 2 neoclassical models of investment often assume that the rate of investment under

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

consequences of a carbon tax on household electricity use and cost carbon emissions and economics of household solar and wind abstract the study was conducted to determine the consequences of a carbon tax equal to an estimated social cost of carbon of 37 2 mg on household electricity cost and to determine if a carbon tax would be sufficient to incentivize households to install either a grid tied solar or wind system u s department of energy hourly residential profiles for five locations 20 years of hourly weather data prevailing electricity pricing rate schedules and purchase prices and solar panel and wind turbine power output response functions were used to address the objectives two commercially available household solar panels 4 kw 12 kw two wind turbines 6 kw 12 kw and two price rate structures traditional meter smart meter were considered averaged across the five households the carbon tax is expected to reduce annual consumption by 4 4 552 kwh year for traditional meter households and by 4 9 611 kwh year for households charged smart meter rates the carbon tax increases electricity cost by 19 202 year for a household cost of 202 year the carbon tax is expected to reduce social costs by 11 annual carbon tax collections of 234 household are expected adding the carbon tax was found to be insufficient to incentivize households to install either a solar panel or wind turbine system installation of a 4 kw solar system would increase the annual cost by 1546 247 and decrease co 2 emissions by 38 2526 kg valued at 94 household the consequence of a carbon tax would depend largely on how the proceeds of the tax are used

the implications of competition among jurisdictions does tiebout need politics the paper investigates whether compensation among local jurisdiction is by itself sufficient to ensure efficient provision of local public goods jurisdictions have fixed boundaries and each has an entrenched government with the power to tax and supply the public good residents can move costlessly among jurisdictions it is shown that competition among numerous jurisdictions is not sificient to guarantee public sector efficiency though residents can vote with their feet land is immobile hence governments can unsurp some land rents for their own ends increasing the number of jurisdictions limits but cannot completely eliminate the ability to exercise discretionary governmental power

capacity utilization and new source bias evidence from the us electric power industry abstract while prior research has shown that new source bias has increased construction costs and delayed the building of new electric power plants this research explores the empirical question of whether increased operating costs caused by new source bias are larger than the cost savings of newer technology if new sources do have higher operating costs an incentive exists to utilize order plants more intensively statistical evidence of these differing utilization rates is found

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

optimizing inventory s contribution to profitability in a regulated utility the averch johnson effect the averch johnson effect is a well known economic phenomenon through which regulated utility companies prefer a capital resource input combination that differs from an efficient level through dynamic network data envelopment analysis ndea this paper first investigates the existence of this effect on a dynamic input that is inventory the analysis was performed for a group of public electric utilities from 2005 to 2014 the result implies that these firms procure a significant extra amount in inventory materials and supplies beyond their efficient levels in order to explore the connection of this effect to profit motives we construct an analytical model of the inventory policy controlling the extra buying of material and supplies that will be inventoried and added to the firm s rate base the model is based on maximizing the net present value of total profits in the deterministic case two results are observed i the firm could achieve a finite optimum by adding a finite amount of inventory above the normal base level which assumes no impact of inventory on the rate hearing and ii the firm could theoretically achieve infinite optimum under the unconstrained model the primary contribution of this paper is the special case of extending typical inventory replenishment models to including the impact on prices and in turn profits in a regulated supply chain

elasticities of substitution for a regulated cost function abstract this paper proposes a modification to the uzawa 1962 characterization of the allen partial elasticity of substitution under cost minimization to take account of the behavioral properties of the cost function for a firm subject to rate of return regulation

x inefficiency and interfirm rivalry evidence from the electric utility industry competition from the natural gas industry is shown to increase the efficiency of the work force of electric power utilities this conclusion is qualified to the extent that duopoly rivalry does not represent perfect competition in a free market as natural gas reserves decline however the impetus to improve efficiency will diminish but this will be offset by technological advances in both power generation and power transmission if regulators develop policies to encourage competitive interplay utility performance is more likely to improve 38 references 3 tables dck

the influence of the federal advisory council on monetary policy the federal advisory council consists of twelve bankers elected by federal reserve bank directorates who advise the federal open market committee every three months on their desired direction for monetary policy this paper tests the conjecture that the council s directives to the committee contain information that predicts subsequent changes in interest rates and committee directives regression equations and granger causality tests do not disprove the conjecture this is the first hard evidence of private interest group influence on monetary policy copyright 1990 by ohio state university press

a dynamic model of the interaction between the state and the private sector abstract the main characteristic of the micro model developed in this paper is the endogenous behaviour of the state the state is treated as an organization in its own right made up of politicians and bureaucrats its behaviour is related to the interests of these agents and their relative power within the state organization the economic consequenses of this interest representation by the state and the impact of structural coercion constraints originating from the private sector on these consequences are our main concern a particular feature of the model is that it allows for the fact that technology may be dependent on the state s activities

corporate management property rights and the x istence of x inefficiency the objective of this paper is to extend stigler s 11 critique of the existence of x inefficiency by incorporating into this debate a number of considerations drawn from the economics of property rights 4 as well as some of the recent literature on agency costs 6 many if not most economists accept x inefficiency as perhaps the major social cost due to monopoly professor leibenstein in his landmark article 8 concluded that gains from increasing allocative efficiency are small while benefits of x efficiency are often significant however assigning x inefficiency such an important role with respect to the social costs of monopoly without carefully scrutinizing its theoretical underpinnings can lead to seriously misguided research efforts and policy proposals for example there is a growing body of literature 10 12 that views the major social cost of monopoly as being derived from rent seeking behavior whereby real resources are wasted in attempts to obtain maintain and extend monopoly power preliminary empirical evidence 10 indicates that the social costs due to rent seeking may outweigh the deadweight loss of monopoly as measured by the harberger triangle 5 focusing on the costs of monopoly as being primarily due to organizational slack or x inefficiency relegates the rent seeking model to secondary importance it is my contention that the opposite strategy is likely to yield the greater payoff focusing our attention on x inefficiency can also lead to misguided policy proposals for example consider two alternative policy approaches to the monopoly problem pursuing atomistic competition by breaking up large firms which are thought to possess monopoly power on the one hand and limiting entry barriers in different industries that are created by government edict i e franchises licenses the former type of policy is thought to eliminate motivational deficiencies on the part of management and to enhance allocative efficiency via the competitive solution alternatively the latter course of action would be more conducive to ameliorating the social costs due to rent seeking by eliminating the source of monopoly rents regardless of whether there are three competitors or three hundred competitors free entry into and exit

the demand for electricity in the gcc countries abstract cointegration techniques are used to study the effects of economic variables on electricity demand in the gcc countries a dynamic model is estimated using aggregate data for the six states spanning the period 1970 97 statistical investigations confirm the existence of unit root in all time series employed in the study which called for the use of cointegration and error correction methodologies empirical results indicate that both income and price have an impact on electricity consumption and income and price policies could be effectively facilitated in electricity demand management

the demise of the public interest model of the federal reserve system the political economy of american monetary policy cambridge university press cambridge 19901 edited by thomas mayer is a collection of one previously published and eighteen unpublished works that seeks to review consolidate and extend the growing literature on a positive theory of the federal reserve system a major theme of the collection is that the traditional public interest view of the fed has little to offer as a guide to understanding the behavior of federal reserve officials at the same time the collection offers a word of caution to practitioners of the positive theory who use a naive public choice approach according to this subplot a narrow self interest approach to the fed is not much better than the traditional alternative a general theory of the federal reserve system requires the right blend of the best elements from the staid public interest view and the renegade public choice view as a review of the current state of the literature this collection of works has much to offer the book is at its best in posing questions that force not only the public interest proponent but also the naive public choice theorist to rethink their positions the book is less useful i think as a road map to future research in contrast to this book s premise the problem i see with the naive public choice approach is not that it has been too radical but that it has not been radical enough the renegade assumption that fed decisionmakers are self interested utility maximizers is misleading only when used within the context of a misspecified model of the macroeconomy i argue in this review essay that the next discrete step in the evolution of a positive theory of central banking is to supplement the self interest assumption with

one price doesn t fit all an examination of heterogeneity in price elasticity of residential electricity in india abstract although well designed consumer electricity pricing can improve access contribute to higher metering increase penetration of energy efficient technologies limit extent of the rebound effect and influence viability of electricity distribution utilities in india there has been no comprehensive policy relevant assessment of price elasticities of electricity demand in the country the objective of this study is to estimate price elasticity of residential electricity consumption and disaggregate it by state rural and urban residence and income categories to provide evidence for electricity tariff setting in india we combine survey data from five rounds of nationally representative household consumption expenditure surveys covering the period 2005 2012 with administrative data on electricity deficit and improve on methods applied in previous studies by estimating price elasticities using a quadratic form to account for constraints in electricity supply we find that while the average price elasticity at the national level is 0 39 95 confidence interval 0 46 0 31 it varies significantly by state rural and urban residence and income categories our results indicate that a one price fits all policy may not be an effective approach to electricity tariff setting in india and a data driven understanding of heterogeneities in price elasticities can better inform residential electricity tariff design in the country

modelling residential electricity demand in the gcc countries abstract this paper aims at understanding the drivers of residential electricity demand in the gulf cooperation council countries by applying the structural time series model in addition to the economic variables of gdp and real electricity prices the model accounts for population weather and a stochastic underlying energy demand trend as a proxy for efficiency and human behaviour the resulting income and price elasticities are informative for policy makers given the paucity of previous estimates for a region with particular political structures and economies subject to large shocks in particular the estimates allow for a sound assessment of the impact of energy related policies suggesting that if policy makers in the region wish to curtail future residential electricity consumption they would need to improve the efficiency of appliances and increase energy using awareness of consumers possibly by education and marketing campaigns moreover even if prices were raised the impact on curbing residential electricity growth in the region is likely to be very small given the low estimated price elasticities unless that is prices were raised so high that expenditure on electricity becomes such a large proportion of income that the price elasticities increase in absolute terms

effects of regulation on utility financing theory and evidence standing of these cross sectional variations might be afforded by the detailed examination of specific industry characteristics and their relationship to firms financing patterns the present study offers a methodology for approaching this issue the first step is to assemble joint theories of industry and financial structure in order to identify the ways in which changing industry conditions might be associated with changes in financing evidence on such simultaneous changes can then be examined in an attempt to identify the most plausible joint theory the methodology is used to investigate the effects of state commission regulation on the financing of electric utilities this is a natural candidate for study since regulation is such a salient feature of the industry in addition the regulatory system imparts some interesting special features to the very nature of utility capital structures inherent in all capital structures for example are opportunities for shifting wealth between bondholders and shareholders but under regulation these wealth shifting opportunities are expanded to encompass consumers as well finally the study of regulation has resulted in several relatively well specified theories of why regulation is imposed and what its observable effects should be in section i the different theories of capital structure and regulation are discussed and their joint implications are derived the capital structure theories include the perfect capital market theory the debt capacity theory and the financing hierarchy theory the regulatory theories include the public interest or market failure theory the political economy theory and the imperfect monitoring theory in section ii financing data from the early days of state commission utility regulation are used to try to distinguish

regulation of administered prices an empirical analysis of the microeconomics of price movement in finland 1972 77 curiously enough the concept of administered prices launched by gardiner means in his 1934 report to the u s secretary of agriculture still shows up in discussions on price policy and control today almost fifty years since it was coined and three decades after the discussion2 in which it should have been buried even more astonishing is the fact that its spin off administered inflation a term introduced by the kefauver committee in 1957 3 is still a part of economic language in some instances in the basic formulation that of means in 1935 administered prices are not assumed to be explicitly linked with market power but simply prices set by administrative action and held constant for a period of time means 12 p 78 although the hypothesis in this form was based on no economic reasoning of acceptable clarity it might still be accepted for the simple truism it is clearly some prices will change more seldom than others since for one thing costs of price changes will vary as is intuitively clear and as shown by sheshinski and weiss 17 pp 294 95 the optimal strategy of a firm in an inflationary environment will consist of longer intervals between successive price changes the higher the cost of such a change is under some very special assumptions risk aversion may also serve as an explanation to a decrease in the number of price changes relative to the number of changes in cost as indicated by the results of schramm and sherman 1 5 4 the administered inflation hypothesis as forwarded by means in his 1957 testimony before the kefauver committee means 12 pp 101 29 and by

bureaucrats legislators and the size of government some recent theories have blamed the growth of government on budget maximizing bureaucrats who are assumedly capable of imposing their most preferred budget output combination on legislatures subject to cost and demand constraints however theoretical examination of the range of bargaining outcomes that might occur between bureau and legislature shows that budget maximizing behavior does not necessarily lead to super optimal levels of production nor do the suggested reforms of competition and privatization necessarily improve the situation in this bargaining model the central determinants of governmental growth are not budget maximizing bureaucrats but the legislature s decisions regarding mode of oversight and form of internal organization

the flypaper effect and competition in the local market for public goods in this paper we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods specifically we examine intergovernmental aid as a resource bureaucrats seek to control intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo classical economic theory in this research the flypaper effect is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences we empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods competition does not consistently limit the flypaper effect the implications of this finding for theories of competition in the local market for public goods are then discussed

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

the influence of the economic approaches to regulation on banking regulations a short history of banking regulations this article highlights the theoretical foundations of the regulations at work in the banking sector and examines their responsibility in the onset of the 2007 2008 financial crisis drawing a parallel between the main changes in banking regulations since the 1960s and the evolutions in the economic analyses of regulation over the same period it shows that the shift from the public interest theory of regulation that prevailed until the late 1960s towards the private interest theory of regulation accounts for the substitution of micro prudential regulations for macro prudential ones and explains a paradigmatic change in the conception of the regulatory instruments of the banking authorities it also shows that although the outcome of several factors the 2007 2008 crisis was also a consequence of the fact that the economic analysis of banking regulations supported micro prudential regulations that fail to take the global features and impact of banking activities into account and have proved unable to recommend effective solutions in a context of crisis

jointly reforming the prices of industrial fuels and residential electricity in saudi arabia abstract the saudi electricity sector currently buys fuel and sells electricity at prices administered by the government in this analysis we illustratively explore combining the reform of the fuel prices used in power plants with the implementation of alternative electricity pricing schemes for the households compared to the scenario replicating the year 2015 we find the aggregate gain to the energy system could reach nearly 12 billion per year by raising both electricity prices to households and industrial fuels to reflect the cost of supply or international markets households would pay an additional 3 billion in electricity costs without any mitigation for the low income households however lifeline prices would halve this burden while maintaining greater gains than deregulating fuel prices alone the average electricity price paid under the lifeline scenario would be a more manageable 4 0 cents kwh versus an average marginal cost price of 7 1 cents kwh in the alternative electricity pricing scenarios we study natural gas usage by the power utilities falls allowing gas to flow to other industries which would consume it to reduce their costs we find the marginal values of natural gas falling at higher electricity prices indicating that the supply of gas is becoming less constraining

regulation and investment use newly assembled data on regulation in several sectors of many oecd countries to provide evidence that regulatory reform of product markets is associated with an increase in investment a component of reform that plays a very important role is entry liberalization but privatization also has a substantial effect on investment sensitivity analysis suggests that our results are robust jel e22 l5

efficiency based rank assessment for electric power industry a combined use of data envelopment analysis dea and dea discriminant analysis da abstract this study discusses a combined use of dea data environment analysis and dea da discriminant analysis to determine the efficiency based rank of energy firms this type of performance evaluation is important because we often have a difficulty in accessing a large sample on energy firms to derive reliable empirical results the proposed approach is useful in dealing with such a limited number of energy firms often found in previous dea studies on energy industries in the world the proposed approach uses dea to classify energy firms into efficient and inefficient groups based upon their efficiency scores then it utilizes dea da to assess their efficiency scores and ranks in this stage we can find an adjusted efficiency score for each energy firm the proposed approach provides us with the following analytical capabilities all of which cannot be found in a conventional use of dea in assessing energy firms first the proposed dea approach can avoid zero in all multipliers on efficient energy firms by incorporating scsc strong complementary slackness condition so that it can handle an occurrence of multiple reference sets and multiple projections the dea result classifies all energy firms into efficient and inefficient groups second dea da applied to the two groups evaluates all energy firms by an industry wide evaluation not depending upon a limited number of efficient energy firms in a reference set as found in a conventional use of dea the analytical capability can reduce the number of efficient energy firms third the proposed approach can provide their efficiency based ranking scores finally we can conduct a rank sum test based upon their ranking scores to obtain a statistical inference as an application this study uses the proposed approach to examine the performance of japanese electric power industry we find two economic implications one of the two implications is that no major change has occurred in the operational performance of japanese electric power industry because of japanese sluggish economy from 2005 to 2009 the other implication indicates that there are strategic differences in the operation of japanese electric power firms after the liberalization

energy price reform in saudi arabia modeling the economic and environmental impacts and understanding the demand response abstract saudi arabia has regulated domestic energy prices for decades setting them below international market levels energy subsidies in saudi arabia are generally implicit because they lead to foregone revenues for the government low energy prices also encourage rapid energy demand growth and wasteful consumption while limiting incentives to invest in energy efficiency saudi arabia recently started to reform energy prices leading to large increases in gasoline and residential electricity prices in 2018 to measure the economic and environmental impacts of energy price reform we econometrically model gasoline and residential electricity demand using harvey s 1990 structural time series model our estimated equations reveal that gasoline demand and residential electricity demand in saudi arabia are strongly price and income inelastic despite the major reforms that were recently implemented our welfare analysis also shows that the energy price reforms in 2018 in gasoline and residential electricity respectively delivered welfare gains of 8 8 and 3 8 billion sar annually 2 3 and 1 0 billion us additionally our decomposition analysis reveals that these energy price reforms were the largest contributors to the observed decreases in gasoline and residential electricity consumption in 2018

capital vintage time trends and technical change in the electric power industry beginning with tinbergen in 1942 economists have employed a time trend in cost or production functions to represent the rate at which new technology is introduced into the production unit in sufficiently flexible models of the production process the time trend may be used to obtain estimates of the rate as well as direction of technical change the use of the time trend is generally defended on pragmatic grounds as no theoretical justification exists for assuming that new technology is introduced at a steady rate that is independent of a firm s investment in r d education capital of a more recent vintage etc in recent years alternatives to the traditional time trend have been sought to represent the rate at which new technology is introduced research in this area has been concentrated in the telecommunications industry where the stock of r d or the percentage of calls completed by direct dialing or modern switching facilities have been employed as technological indices by nadiri and schankerman 32 denny et al 14 and christensen et al 7 the latter two studies indicate that explicit technological indices provide a better representation of the pace of innovation than the time trend this conclusion must remain tentative however as it is not possible to determine what is the true direction of technical change in these studies this shortcoming is overcome in a recent study by kopp and smith 24 who compare the performance of time trends and explicit technological indices in a study using pseudo data generated by process analysis models their results unambiguously support the use of technologically explicit indicators of technical change and indicate that the use of a time trend may not provide a consistent estimate of the direction of technical change this study does not however shed any light on the ability of a time trend to accurately reflect the rate of technical change the purpose of this study is to investigate the effects of alternative technological indices on the estimated rate and direction of technical change in the electric power industry the performance of a time trend is compared with that of a vintage index computed as the average age of a firm s steam generating capacity this latter index is consistent with the notion that new technology is embodied in newly constructed capital an assumption sup

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

cost efficiency of electric grid utilities in china a comparison of estimates from sfa mle sfa bayes and stoned cnls with the purpose of estimating the range of cost efficiency levels of the power grid sector in china we assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009 and conducted an empirical study based on the sfa mle sfa bayes and stoned cnls methodologies empirical results show that the average values of efficiency from different models vary from 0 85 to 0 92 depending especially on the assumptions underlying inefficiency content further results demonstrate that there is exogenous technical progress during the sample period and per capita gdp of the province is negatively related to the costs of the electric grid company located in the corresponding province we hope this empirical study will contribute to the debate on an efficiency based regulation scheme which was introduced to the chinese electric grid sector on a pilot base in 2014

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

service quality in the electricity industry the role of privatization and managerial behavior abstract this paper analyzes the relationship between privatization and service quality in the electricity industry and tests the hypothesis that managerial behavior is a significant intervening factor the sample includes 31 italian distributors over the period 1998 2004 their quality performance is represented by continuity of supply an aspect of quality that is both contractible and regulated results of the empirical analysis suggest that the transfer of shareholdings to private investors does not lead to quality degradation the results also suggest that managerial dominance translates into a reduction in supply quality this effect is likely to be particularly strong for public sector utilities

behavior of the firm under regulatory constraint a recent article in this review by averch and johnson 3 on the fair rate of return regulation in public utilities industries or more generally regulated industries attracted the attention of many economists in essence averch johnson argues that the introduction of an active constraint of a fair rate of return type would induce the firm to invest more than the original profit maximizing value of capital and this would create an inefficient allocation of inputs in addition to frequent citations in verbal arguments it has invited some thieoretical extensions by economists such as wvestfield 8 and klevorick 5 all of the writers seem to accept the basic theoretical foundations set by averch and johnson for example klevorick 5 recently proposed that the fair rate of return should be inversely related to the size of the capital of a firm the intuitive basis for this is apparent for it in effect creates a penalty as the amount of capital used by the firm increases however it seems to me that averchjohnson s original arguments are sketchy and contain somewhat ambiguous logic at several important points although their conclusion for which they tried to find empirical support that a firm will tend to increase its investment with the introduction of an active constraint seems to be correct it does not follow from their arguments in particular there seems to be a serious error which arises from confusing movements along a curve and shifts of a curve in section ii we clarify those ambiguities and if necessary correct the mistakes in the third section of this paper we shall provide a new formulation of the problem we shall find that the new formulation will give the same answer as averchjohnson namely that a firm will tend to invest more with the iiltroductioin of an active constraint it should be noted however that while the conclusion happens to be the same this was not the necessity for we needed a completely new formulation to obtain the old conclusion

bureaucracy monopoly and competition a critical analysis of the budget maximizing model of bureaucracy niskanen has argued that if government bureaus act so as to maximize their budgets they will always produce an output greater than a private industry resulting in efficiency losses to society since the budget maximizing model relates to a number of intersecting areas of organizational analysis from several disciplines it is important to note the limitations of the model first niskanen s result is only true for a bureau which can exercise perfect price discrimination in its relationship with its financial sponsor where this is not the case the bureau may produce less than a private industry second further variation is introduced by examining the effects on a bureau of specialized resources public goods competition and low productivity a bureau which would otherwise produce an output in excess of the competitive level will when any of these factors are present produce an output closer to the competitive output these results may also have significant policy implications since major industrial countries are favoring policies to return some governmental activities to the private sector

households response to changes in electricity pricing schemes bridging microeconomic and engineering principles abstract this paper presents a computational take on households response to price changes many studies use assumptions i e price elasticities that were estimated using historical information however if a price change has not been experienced in the past the response may not be statistically predicted while other papers have explored price response behavior internally through microeconomic principles many factors affect a household s electricity use including the construction of the dwelling outdoor air temperature and efficiency of the air conditioner we have superimposed a physical model which determines hourly power loads with a utility maximization component the dwelling itself is calibrated to one in saudi arabia but we test households that have various preferences in their utility function levels of thermal insulation and income we further analyze a wide range of electricity pricing schemes some are progressive tariffs while one is defined hourly the extent to which the prices are raised in the alternative schemes has never been experienced in saudi arabia our analysis shows that households with low electricity preferences exhibit a larger short run response than would be derived from the aggregate price elasticities estimated statistically moreover improved building insulation affects the household s decision making process

factor price changes technical efficiency and revenue requirements regulation a regulatory framework is considered in which output price adjustments can be initiated only by a change in the price of a non capital input e g fuel at some time in the future which is uncertain at that time there is a processing period and then an adjustment of the output price so that the revenues of the firm meet an allowed rate of return s the regulated firm choosing a putty clay technology is shown to overcapitalize for large values of s and to undercapitalize for sufficiently small values of s a decrease in the length of the processing period is found to accentuate the extent of either the undercapitalization or overcapitalization resulting from the specified rate of return

time of use pricing for load management programs in taiwan power company load management programs have been actively performed by the utilities to reduce peak demand and improve system load factor in recent years the time of use tou tariff based on the peak load pricing theory has been one of the most effective load management strategies proper tou rate structure can actually reflect the generation cost of electricity supplying and give a guideline for customers to modify the power consumption pattern so that the system load factor can be improved the inverse electricity pricing rule can be applied as the basis of tou pricing in this paper the price elasticities of industrial customers of taipower system are solved by the statistical regression model with 2620 data samples

regulator heterogeneity and endogenous efforts to close the information asymmetry gap abstract the now standard principal agent model of regulator firm interactions typically assumes the presence of a single regulator and an exogenously determined information asymmetry between the principal and the agent in this paper we draw upon a unique data set of regulatory inspections conducted by the u s food and drug administration fda to explore the consistency of these assumptions with the actual practice of regulators we find that the canonical assumptions of the agency paradigm are strained by if not altogether inconsistent with the key practical realities of regulation by the fda our analysis uncovers several dimensions along which regulators actively and endogenously seek to close the information asymmetry gap we also find considerable regulator heterogeneity which in turn depends in part upon the specific training and experience of individual regulators

efficient regulation with little information reality in the limit we present a regulatory scheme that converges to ramsey pricing and productive efficiency even if regulators have little information about technology or demand the model has firms selecting prices subject to the regulator s requirement that the firm earn a fair return on capital at today s capital stock and output levels regulators then review later performance and are more likely to request new rate hearings as the firm s return deviates more from the fair return as long as regulators do not review negative returns too fast relative to positive returns these conditions are sufficient for convergence to ramsey prices and productive efficiency public utility regulators generally set prices not rates of return per se these prices however often are meant to achieve approximately some target rate of return but when projecting how prices will affect rates of return regulators are often at the mercy of the firms for economic projections about the effects of various price vectors e g across customer classes upon profits so if realized rates of return deviate from targets regulators may call new rate hearings and they may expedite these hearings if the deviations are large 2 by formalizing these real world observations some rather surprising efficiency results appear suppose that regulators have no knowledge of demands and technologies but can observe past realizations of prices and quantities if the review probabilities are as noted above and satisfy an asymmetry condition then this regulatory process may converge not only to productive efficiency overcoming averch johnson over capitalization effects but to ramsey prices these conclusions are derived from unifying and extending work by bawa and sibley 1980 and vogelsang and finsinger 1979

regulated equity returns a puzzle abstract based on a database of u s electric utility rate cases spanning nearly four decades the returns on equity authorized by regulators have exhibited a large and growing premium over the riskless rate of return this growing premium does not appear to be explained by traditional asset pricing models often in direct contrast to regulators stated intent we suggest possible alternative explanations drawn from finance public policy public choice and the behavioral economics literature however absent some normative justification for this premium it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms

the multiproduct firm quality choice and regulation a monopolist facing a market of heterogeneous consumers will distort the quality a rray this paper explores three regulatory remedies minimum quality s tandards mqs maximum price regulation mpr and rate of return re gulation rorr that can counteract this distortion mqs and mpr rais e the quality offered to consumers with a low willingness to pay for quality while mqs have no effect on the quality offered to consumers with a high willingness to pay mpr decreases the quality offered to this group if production of high low quality goods is capital i ntensive rorr increases decreases the quality offered to both grou ps copyright 1988 by blackwell publishing ltd

the publicness of local public goods evidence from ontario municipalities recent studies of local public good provision report publicness parameter estimates of about one indicating private good characteristics this empirical investigation of a wider range of communities obtains parameter estimates of significantly less than one indicating a high degree of publicness exists in smaller municipalities and within the service areas of individual public facilities comprising the supply network in larger centres it is argued that the observed values of the publicness parameters have no normative significance as to the merits of public versus private provision la materialite publique d usage des biens publics locaux resultats d une etude de municipalites ontariennes les etudes recentes sur l approvisionnement de biens publics locaux indiquent des coefficients de materialite publique d usage autour de l unite c est a dire que les biens publics locaux ont de fortes caracteristiques semblables aux biens prives ce memoire presente les resultats d un enquete empirique d un large eventail de communaut6s locales et en arrive a des valeurs pour le coefficient de materialite publique d usage qui sont bien moins que l unite et qui donc indiquent un haut degre de materialite publique d usage dans les petites municipalites mais aussi dans les zones de service d infrastructures particulieres parc bibliotheque poste de pompier etc qui forment le reseau d approvisionnement de biens publics dans les grands centres les auteurs suggerent que les valeurs observees de ces coefficients de materialite publique d usage n ont aucune portee normative et donc ne sauraient arbitrer les merites relatifs d un approvisionnement prive ou public de certains biens

pricing efficiency under rate of return regulation some empirical evidence for the electric utility industry the authors test quasi optimal pricing rules for rate of return regulation for a sample of electric utilities they estimate the regulated cost function and demand equations by class of customer for the sample to yield the cost and demand parameters required to assess the utility rate structures the results indicate that the price structure of electricity by class of customer is not quasi optimal and that welfare improvement might be possible under alternative prices searching for the price structure which satisfies the criteria they find that commercial users rates have been too high relative to residential and to a lesser extent industrial rates they note that commercial uses tend to be less organized and more poorly represented in the rate making process 16 references 8 tables

regulatory and life cycle influences on managerial incentives an important controversy persists in economics concerning the appropriateness of profit maximization as opposed to various competing nontraditional theories of the firm 13 of particular interest has been the comparative relevance of the sales maximization hypothesis suggested by baumol 4 and others a typical methodology employed to empirically analyze the profit versus sales maximization issue has been to question whether the financial rewards of top executives are more strongly influenced by corporate profit or sales performance it is implicitly assumed that the firm has a well defined set of organizational goals and that the structure of executive compensation is designed to provide executives with a consistent set of incentives therefore should profit performance constitute a significant determinant of executive compensation support for the profit maximization hypothesis would be gained on the other hand if executive compensation is closely related to firm sales then the nontraditional sales maximization hypothesis would be supported in an early empirical analysis of the issue mcguire chiu and elbing 14 found that sales and compensation were more highly correlated than were profits and compensation and therefore that the baumol hypothesis seemed most relevant lewellen and huntsman 12 pointed out however that mcguire et al had neglected to consider the deferred and contingent stock options etc elements of executive compensation and in so doing had perhaps biased their analysis against the profit maximization hypothesis by correctly considering the impact of corporate performance on the total compensation of top corporate executives lewellen and huntsman found strong support for the profit maximization hypothesis and no support for sales maximization in fact so convincing were the lewellen and huntsman results that they seemed to resolve the managerial motivation issue in favor of the traditional profit maximization model more recent empirical analyses however have tended to suggest that the issue is far from resolved baker 3 boyes and schlagenhauf 5 and ciscel and carroll 6 have all

regulatory restructuring and incumbent price dynamics the case of u s local telephone markets prior to the telecommunications act of 1996 many u s states restructured their regulatory framework by replacing rate of return regulation with competition in both the local exchange service and local long distance markets and adopting price regulation price caps and price freezes using a panel data set of incumbent firm prices for three services i investigate whether price regulation and differences in entry conditions affect incumbent operators rate structures i find that competition has prompted a significant amount of rate rebalancing by reducing the amount of cross subsidization present in local telephone markets in addition the added flexibility of price cap regulation speeds the rate rebalance effects of competition

product complementarities capabilities and governance a dynamic transaction cost perspective the organization and governance of the transactions that comprise a bundling arrangement depend on the distribution of capabilities among firms and the amount of time during which the window of opportunity for earning rents is expected to remain open firms engaged in inter firm collaboration must undertake support transactions related to billing marketing customer support and product repair these support transactions differ from the core transactions that have traditionally been perceived as sufficient to provide a product bundle since support transactions create costs of their own the market may turn out to be an expensive means of governing collaborative arrangements undertaken for bundling purposes the telecommunications service sector provides an illustration copyright 1997 by oxford university press

private sector influences on monetary policy in the united states i examine the extent to which the federal reserve s monetary policy actions are correlated with the expressed wishes of private sector lobbying groups i update and extend work by havrilesky 1990 1993 regarding the effect of signals from the banking industry through the federal advisory council fac i also construct a new database containing statements from non financial interest groups i find that monetary policy actions are correlated with signals from non financial groups before 1979 but not after and are correlated with signals from the fac after 1979 but not before i also find that the fed s policy stance more closely matches the preferred stance of the banking industry after 1979

budget maximizing governmental agencies an empirical test niskanen s theory of government budgeting involving powerful agencies interested in maximizing their budgets through bargaining with a weak poorly informed governmental sponsor has received wide recognition this paper presents the first direct empirical tests of niskanen s ideas one implication of niskanen s model of budgeting is that the demand for public services will appear to be elastic niskanen s model also implies restrictions on the elasticity of the derived demand for labor in the public sector neither set of predictions is supported by existing empirical research on government activity

inflation presidents fed chairs and regime shifts in the u s real interest rate several recent papers agree on the existence of significant regime shifts in the u s real interest rate but disagree on the proximate causes of the shifts caporale and grier 2000 point to large political changes as correlates while rapach and wohar 2004 show that real rate breaks are correlated with inflation regime shifts and argue that the inflation regime changes cause the real rate shifts in this paper we show that controlling for the timing of changes in the inflation regime dummy variables representing either party change in the presidency or change in the identity of the fed chair are still strongly significant for explaining real interest rate fluctuations when we control for a fixed coefficient linear relationship between inflation and the real rate we find two real rate regime shifts that line up almost exactly with the accessions of paul volcker and alan greenspan even if we first let inflation regime switches explain the real rate and then look for regime shifts in the residuals we find almost exactly the same two breaks these results imply that fed chairs sometimes differ with respect to their preferred equilibrium real interest rate

an examination of the effect of ownership on the relative efficiency of public and private water utilities the behavior of privately and publicly owned water utilities is examined by estimating a generalized variable cost function containing the regular characteristics of the neoclassical cost function without requiring that cost minimization subject to market prices be imposed as a maintained hypothesis assuming that unobserved shadow prices reflect the regulatory environment of the water industry tests for cost minimization are obtained by deriving shadow prices as functions of market prices the empirical results provide evidence that public water utilities are more efficient than private utilities on average but are more widely dispersed between best and worst practice

a note on allowed and realized rates of return of the us electric utility industry most empirical investigations of electric utility behavior use the realized rate of return as a proxy for the allowed rate of return we examine the validity of this assumption and investigate the relationship of the allowed and realized rates to the cost of capital between 1973 and 1982 we use two measures of the cost of capital one based on returns to book equity the other derived from a market price of equity while realized and allowed rates were generally higher than the book measure throughout the period both of the rates of return were less than the market price of capital after 1979 we also find firms did not earn their allowed rate of return after 1974 therefore the use of the realized rate as a proxy for the allowed rate in empirical models will lead to biased parameter estimates to help correct this bias we give data for allowed rates