A regulated firm that can make decisions both before and after uncertainty is resolved with respect to input use cannot be led to competitive solutions by regulatory price ceilings. Whether those ceilings are imposed before or after the resolution of uncertainty, they present incentives for undercapitalized production, contrary to usual AJ assertions. Under these conditions the Fair Return objective is neither a sufficient nor an unambiguous regulatory target.

The valuation of the firm in the context of the Capital Asset Pricing Model (CAPM) of Sharpe [22] and Lintner [18] brings into a new focus the product ion-investment decisions of the firm faced with demand and cost uncertainty. The market value of the firm and the level of systematic risk which arise from its product ion-investment decisions become items of primary importance. Although there are earlier treatments of the real determinants of valuation and risk in a dynamic context (e.g., Thomadakis [24] and Myers and Turnbull [20]), the case of a firm which experiments for the acquisition of information can furnish new insights.