Charles W. Smithson

The Degree of Regulation and the Monopoly Firm: Further Empirical Evidence

A review of previous research on over-capitalization as a response to regulation of monopoly firms seeking to maximize their profits leads to econometric modeling of the concept. Steam-electric utilities in the private sector furnished data for the model. Results support the proposition that a regulated rate-of-return causes companies to use inputs inefficiently but not that it causes them to overcapitalize. Several interpretations are suggested, such as the effects of labor and other constraints and the possibility that regulations are not enforced or that rates of return are too high. Further investigation is recommended to assess these factors and the impact of peak loads. 13 references.

Can Discrimination Increase Employment: A Neoclassical Perspective

A distinguishing feature of Joan Robinsons classic 1933 work Economics of Imperfect Competition was a comparison of the firms price and output decisions under simple monopoly with those which obtain under discriminating monopoly [15, 188-202]. The most important advance over Pigous analysis of discrimination [14, 811-12] was to show that, given nonlinear demand curves, when two markets are served under either simple or discriminating monopoly, output may increase, decrease, or remain constant as a function of the relative adjusted concavities of the curves [15, 40-41]. A great deal of attention has been devoted to various aspects of this model in the cases of decreasing cost industries [11], and of the efficiency and welfare aspects of firm pricing policies [8] and other applications, including output analysis [2;7]. Regardless of the economists recent concern and interest in the problems of discrimination in employment (white/black, men/women, adult/teenage, permanent/migrant, etc.), the underlying neoclassical principles of monopsony discrimination have not been clearly expounded.2 The purpose of this paper is to extend-in both linear and nonlinear cases--a

The "Optimum" Degree of Rate-of-Return Regulation: A Two Sector Analysis

Recently, considerable attention has been given to the economic effects of rate-of-return regulation of monopoly firms. One of the conclusions of the literature on this subject is that some regulation is always better than no regulation, from a welfare point of view. The purpose of this paper is to show that such a conclusion does not necessarily hold in a two sector analysis. Under rate-of-return regulation, the firms prices are set such that the rate-of-return to capital does not exceed some fair rate allowed by the regulatory authority. It has been asserted that a profit-maximizing monopoly firm will react to such a constraint by employing more of all inputs, thereby expanding output, but will employ more than the efficient level of capital relative to the other inputs [1; 8]. A corollary to this proposition is that, if the regulatory constraint is tightened in the sense of lowering the allowed rateof-return toward the market price of capital services, the monopoly firm will respond with additional output but will move further from its expansion path. If these effects occur, such a form of regulation would involve significant welfare considerations. From the viewpoint of the economy in which the monopoly firm operates, the increased output and corresponding lower unit price represents a benefit. However, the inefficient use of capital imposes a cost on the economy. The question is then whether this form of regulation represents a second best solution. More specifically, the

Relative factor usage in canadian mining: Neoclassical substitution or biased technical change?

Abstract Using data drawn from the metal mining industry in Canada, this paper examines the sensitivity of estimated partial elasticities of substitution to the specifications of the underlying production relation. Earlier research has demonstrated that these estimates are sensitive to the imposition of homotheticity. This study also considers the effect of the imposition of neutral technical change by incorporating an index of technology that reflects exogenous, embodied technical change. Furthermore, this paper describes how the effects of neoclassical substitution, nonhomothetic production, and non-neutral technical change can be identified and isolated. Estimates made using a trans-log cost function indicate that the primary substitution occurred between capital and energy. Capital and labor were somewhat less substitutable, and absolute complementarity existed between the other input pairs. Although the estimates were consistent with a homothetic production function, biased technical change was indicated. The bias was estimated to be toward using capital and/or saving labor. To consider the effect of specification,homotheticity and neutral technical change were impos restrictions imposed, capital and labor appeared to be more substitutable. Labor and energy become substitutes rather than compliments, and capital and energy appeared to be more complimentary.