The Choice between Capitalizing and Expensing under Rate Regulation

Peter B. Linhart, Joel L. Lebowitz and Frank W. Sinden

Bell Journal of Economics, 1974, vol. 5, issue 2, 406-419

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.

Date: 1974
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