REGULATION OF THE TRUCKING INDUSTRY: THE IMPACT AND THE IMPLICATIONS

Allocative inefficiency resulting from economic regulation of public utilities has been the focus of the Averch-Johnson literature. Few attempts have been made to determine the validity of the thesis for other regulated industries. This paper provides evidence on the significance of this allocative inefficiency in the regulated trucking industry. A transcendental logarithmic cost function is estimated using cross sectional data for over 250 firms in 1977. The empirical results indicate that the hypothesis of neoclassical cost minimization cannot be accepted; rather, the imposition of the regulatory constraint results in a systematic allocative inefficiency. The paper extends the understanding of this allocative inefficiency and provides empirical evidence for the generality of the Averch-Johnson thesis.