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The Implications of Regulation for Induced Technical Change

V. Kerry Smith
The Bell Journal of Economics and Management Science
Vol. 5, No. 2 (Autumn, 1974), pp. 623-632
Published by: RAND Corporation
DOI: 10.2307/3003124
Stable URL: http://www.jstor.org/stable/3003124
Page Count: 10
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
The Implications of Regulation for Induced Technical Change
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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.

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