Regulation effects on resource allocation of a utility-maximizing firm

Michael Landsberger, Abraham Subotnik

Research output: Contribution to journalArticlepeer-review


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 languageEnglish
Pages (from-to)235-254
Number of pages20
JournalEuropean Economic Review
Issue number3
StatePublished - Oct 1976
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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