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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Chang, KP. A note on the effect of rate-of-return regulation under uncertainty. J Regul Econ 3, 349–355 (1991). https://doi.org/10.1007/BF00138474
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DOI: https://doi.org/10.1007/BF00138474