The Graduated Fair Return: A Further Comment.

This article focuses on Alvin K. Klevorick's analysis of the graduated fair return proposal. The essence of his proposal was that regulation could be improved if the fair rate of return were converted from a constant into a decreasing function of capital. In attempting to prove that this modification of regulatory procedures would decrease the input inefficiency noted by Harvey Averch and Leland L. Johnson, namely, the divergence between the marginal rate of substitution of capital for labor and the factor-cost ratio, the comparison drawn between the constant and graduated fair return methods of regulation was invalid.