directional distance functions and rate-of-return regulation方向性距离函数和收益率的监管.pdfVIP

Hindawi Publishing Corporation Advances in Decision Sciences Volume 2012, Article ID 731497, 11 pages doi:10.1155/2012/731497 Research Article Directional Distance Functions and Rate-of-Return Regulation Juan Aparicio and Jesus T. Pastor Center of Operations Research (CIO), University Miguel Hernandez of Elche, Alicante, 03202 Elche, Spain Correspondence should be addressed to Juan Aparicio, j.aparicio@umh.es Received 7 April 2012; Accepted 14 May 2012 Academic Editor: Henry Schellhorn Copyright q 2012 J. Aparicio and J. T. Pastor. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. 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 specific reference direction arises as a natural choice for measuring efficiency with directional distance functions. 1. Introduction All over the world, most countries deal with the problem of monopoly by means of regula- tion. This type of solution is widespread in the case of natural monopolies: water, natural gas, and electric companies. These companies are not allowed to charge any price they want to. Instead, government agencies regulate their output prices. One form of regulation is that of rate-of-return regulation. After the firm subtracts its operating expenses from gross revenues, the remaining net revenue should be just sufficient to compensate the firm for its