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The Choice between Capitalizing and Expensing under Rate Regulation

Author

Listed:
  • Peter B. Linhart
  • Joel L. Lebowitz
  • Frank W. Sinden

Abstract

In this paper we give a mathematical analysis of some of the consequences, over time, of the decision to capitalize or to expense. Both regulated and unregulated firms are considered. It is shown that for a regulated firm, in contrast to an unregulated one, this decision does have an impact on the customers, who should rationally prefer either capitalization or expensing, depending on their discount rate. It is shown that the attitudes of rational owners will also depend on their discount rate. The point of view of the tax collector is also considered.

Suggested Citation

  • Peter B. Linhart & Joel L. Lebowitz & Frank W. Sinden, 1974. "The Choice between Capitalizing and Expensing under Rate Regulation," Bell Journal of Economics, The RAND Corporation, vol. 5(2), pages 406-419, Autumn.
  • Handle: RePEc:rje:bellje:v:5:y:1974:i:autumn:p:406-419
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    Cited by:

    1. Mirucki, Jean, 1980. "Comportement de l'entreprise réglementée: étude de l'hypothèse Averch-Johnson
      [Behavior of the Regulated Firm: A Study of the Averch-Johnson Hypothesis]
      ," MPRA Paper 27669, University Library of Munich, Germany, revised 1982.
    2. Mirucki, Jean, 1980. "Vérification des conditions d'efficacité dans la production chez Bell Canada
      [Checking the conditions of efficient production in Bell Canada]
      ," MPRA Paper 30147, University Library of Munich, Germany, revised Jun 1980.

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