Assessing the Averch-Johnson-Wellisz Effect for Regulated Utilities

This paper expands upon the observation of Paul Joskow (2005) that exploration of the Averch-Johnson-Wellisz (AJW) effect over the previous fifteen years had been a waste of time and effort. In a non-random selection of 192 articles published since 1962, 39% fail to specify or provide results of tests for necessary pre-conditions for the effect and in almost all remaining articles a strong conclusion should not be reached due to problems with single-period estimation, capital price calculations, definitions of output, or input complementarities. In general, there is little evidence to suggest that there was ever an AJW effect.