The primary purpose of this dissertation is to formulate and perform an econometric test for the existence of an Averch-Johnson type of capital bias in the U.S. electric utility industry. The Averch-Johnson hypothesis, which states that firms subject to rate-of-return regulation will produce their output with more capital than if they were unregulated, has always been of uncertain empirical significance.;The data employed is a time-series of cross-sections of thirty-five electric utility firms between 1964 and 1977. By partitioning the data into two smaller pools, 1964-73 and 1974-77, it becomes possible to test for an Averch-Johnson effect before and after the Arab oil embargo which occurred late in 1973. The theory of the regulated firm predicts that when input prices increase (e.g. due to an embargo) relative to the allowed rate of return, the firm will be less prone to capital bias. Therefore, this thesis not only tests for an Averch-Johnson effect in general, it also tests whether the theory is correct in predicting a stronger capital bias during an era of more stable input prices.;The results indicate that the theory makes predictions which can be confirmed for thirty-five electric power firms in the United States. While an Averch-Johnson effect is detected for the years 1964-73, none is found to exist between 1974 and 1977. These findings represent the only available evidence on this issue for the decade of the 1970's.;The particular econometric test is one that estimates the parameters of an equation which expresses the firms' ratio of capital expenditure of total revenue as a function of several variables including the allowed rate of return. According to the theory of the regulated firm, if the estimated parameter of the rate of return variable lies between zero and one, the Averch-Johnson effect is confirmed; otherwise it is rejected.
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