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An Empirical Test of An Electric Utility Under An Allowable Rate of Return

George J.Y. Hsu and Tser-Yieth Chen

Year: 1990
Volume: Volume 11
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No3-4
View Abstract

This paper examines a utility's behaviour under the regulatory constraint of a maximum allowable rate of return. The golden rule of production efficiency, i.e. that the marginal productivities of the input factors are equal, is used as our criterion to examine the utility's economic behaviour. Our case study uses a translogproduction function to investigate the production efficiency of the Taiwan Power Company. Two null hypotheses are tested with the results obtained supporting the existence of the A-f effect. The implications of the results are discussed, a comparison with previous studies is presented, and suggestions for further research are made.

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