The Implications of Regulation for Induced Technical Change
Volume: Volume 5, No. 2
Issue: Autumn 1974
Pages: pp. 623-632
Authors: V. Kerry Smith
Title: The Implications of Regulation for Induced Technical Change
Abstract: The purpose of this paper is to extend the Averch-Johnson model of the regulated firm so as to allow for the endogenous selection of factor augmenting technical change. A simple model is developed which avoids the questions of timing, capitalization, and internalization of innovations and focuses on the incentives to a firm for innovational choice under cost minimizing conditions versus several formulations of the regulated setting. The results suggest that regulation can distort the innovational selections. Moreover, in the case of the profit maximizing firm subject to "fair" return on investment regulation, the innovational choices will reinforce the static overcapitalization tendencies.
JEL Classification
Regulation of Public Utilities (6130)
Technological Change and Innovation (6211)