The well known Averch Johnson effect states thatrate-of-return regulation will induce costinefficient production. This paper examinesregulation induced inefficiency in broad set ofenvironments including arbitrary regulatorymechanisms, multiple outputs/inputs, uncertainty,time dynamics, price discrimination, and more. Ishow that the Averch Johnson effect appliesthroughout a wide variety of settings. Despite thegenerality of framework, my analysis is trulyelementary and does not rely on Kuhn–Tucker analysisor three dimensional graphics. I also provideresults and discussion which clarifies the limits toAverch and Johnson-like insights in practicalapplications.
Review of Industrial Organization – Springer Journals
Published: Oct 3, 2004
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