Atlantic Economic Journal

, Volume 4, Issue 3, pp 51–55 | Cite as

A note on the optimal investment policy of the regulated firm

  • David W. Peterson
  • James H. Vander Weide


We have demonstrated that, contrary to the spirit of much of the thinking based on the work of Averch and Johnson, it need not be true that rate-of-return regulation entices a firm to over-invest in productive capital. For a simple dynamic model featuring an imperfect capital market, we find that it may be optimal for the regulated firm to invest at every instant of time at a rate less than its unregulated counterpart. Our findings demonstrate once again the strong dependence on model specifications of the conclusions one draws in the study of regulatory problems.


Model Specification International Economic Capital Market Public Finance Strong Dependence 
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Copyright information

© Atlantic Economic Society 1976

Authors and Affiliations

  • David W. Peterson
    • 1
  • James H. Vander Weide
    • 1
  1. 1.Duke UniversityUSA

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