Directional Distance Functions and Rate-of-Return Regulation

Directional Distance Functions and Rate-of-Return Regulation

This paper is concerned with formulating directional distance functions assuming that firms operate subject to rate-of-return regulation. To this end, we consider two different contexts. First, we assume that input prices are known, which allows us to extend the rate of return regulated version of Farrell efficiency. Secondly, we assume that input prices are unknown, showing then that a specifi...

Price Caps and Rate of Return Regulation

This paper considers the difference between two types of regulation as they affect the regulated firm. Using the electricity distribution industry in Victoria as a case study, we discuss the impact of the periodic resetting of regime parameters which is a standard feature of price cap regimes. We explain why such resets are necessary and how the resulting incentives differ from those generated ...

Dynamics of Rate-of-Return Regulation

It is commonly accepted in the industrial organization literature that rate of return regulation leads to inefficient outcomes. Since prices are calculated so as to cover the regulated firm’s average cost, which includes the periodic fixed costs associated with plant property and equipment, the conventional argument is that prices must exceed the marginal cost of production. This paper examines...

Using Directional Distance Functions to Determine Ranking Ranges in Cross-efficiency Evaluations

Linear Functions Preserving Multivariate and Directional Majorization

Let V and W be two real vector spaces and let &sim be a relation on both V and W. A linear function T : V → W is said to be a linear preserver (respectively strong linear preserver) of &sim if Tx &sim Ty whenever x &sim y (respectively Tx &sim Ty if and only if x &sim y). In this paper we characterize all linear functions T : M_{n,m} → M_{n,k} which preserve or strongly preserve multivariate an...