Temporary Equilibrium Model and Optimal Capital Stock: An Application to Japanese Electric Utilities

Abstract

This paper provides empirical evidence on scale economies and the capacity utilization of Japanese electric utilities. Panel data of Japanese electric utilities are analyzed using a static equilibrium with a quasi-fixed factor. Optimal capital stock level is estimated, using the envelope relationship. Scale economies and capacity utilization are also estimated at the optimal capital stock level. Scale economies exist in the short-run, but not in the long-run. Most of capacity utilization are less than one in Japanese electric utilities. However comparing with other studies, we can not certainly say the existence of excess capacity.