Optimal investment policy of the regulated firm (Q1124515)

The purpose of the paper is to investigate the optimal investment behaviour of a regulated firm and to show that the so-called Averch- Johnson effect does not necessarily exist in a dynamic model of a profit maximizing firm when its revenue function is concave. A great deal of the paper concerns an analysis of 3 types of solutions of the model presented therein in the cases of undercapitalization, overcapitalization and neutralization.