Abstract
The literature on the effects of rate of return regulation on the allocation of resources was mostly devoted to the classical case of a profit-maximizing monopolist. An attempt is made in this paper to extend the analysis to a firm who maximizes a utility function with profits and revenue as arguments. We prove that a meaningful presentation of the regulation effects implies the formulation of two constraints. Whether the firm over-or undercapitalizes depends on whether the constraint is imposed as an upper or a lower limit. The higher the profit motive the higher the capital-labor ratio and the marginal rate of substitution between labor and capital.
Original language | English |
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Pages (from-to) | 235-254 |
Number of pages | 20 |
Journal | European Economic Review |
Volume | 8 |
Issue number | 3 |
DOIs | |
State | Published - Oct 1976 |
Externally published | Yes |
ASJC Scopus subject areas
- Finance
- Economics and Econometrics