Reexamination of the A-J effect

Abstract

We establish four necessary and sufficient conditions for the existence of the Averch-Johnson effect in a generalized version of their famous model of the rate-of-return regulated firm. The four necessary and sufficient conditions are then compared to the two stronger sufficient conditions for the Averch-Johnson effect found in the literature. Our analysis also permits us to put to rest a somewhat protracted debate about the very existence of the Averch-Johnson effect.