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Appliance Depreciation and the Demand for Energy

Michael A. Einhorn

Year: 1987
Volume: Volume 8
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol8-No1-10
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Abstract:
Economists have long recognized that the cost of using an appliance or machine should incorporate both the associated energy cost and a user cost for the depreciation of capital that results. One must be careful in measuring the latter. Depending on whether the appliance or machine depreciates with time or usage, quite different measures of user cost can be valid. I attempt here to identify the differences and to suggest some possible tests for determining how consumers might incorporate appliance depreciation in their decision making.



Petroleum Taxation Contingent on Counter-Factual Investment Behaviour

Petter Osmundsen, Magne Emhjellen, Thore Johnsen, Alexander Kemp and Christian Riis

Year: 2015
Volume: Volume 36
Number: Adelman Special Issue
DOI: 10.5547/01956574.36.SI1.posm
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Abstract:
Petroleum administration can be regarded as a principal-agent problem. The government allocates exploration and production rights to petroleum companies on behalf of the population. The government is the principal and the companies are agents. With the aim of capturing revenue for the state, the government devises a petroleum tax system which takes account of the investment decisions made by the companies, while acknowledging for the fact that the companies may report strategically to the government. An important issue is how tax deductions are to be treated in investment analysis. A discrepancy arises here between assumptions made in some areas of tax theory and the actual investment analyses conducted by the companies. Tax theory has given rise to discussion and controversial tax proposals for the petroleum sector in Norway, Denmark and Australia. It led, for example, to reductions in tax-related depreciation for the Norwegian petroleum industry in May 2013. The article reviews this tax debate and analyses the implications of basing tax design on counter-factual investment behaviour.



Taxation and Investment Decisions in Petroleum

Graham A. Davis and Diderik Lund

Year: 2018
Volume: Volume 39
Number: Number 6
DOI: 10.5547/01956574.39.6.gdav
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Abstract:
When governments apply high tax rates targeted at natural resource rent, there must be generous deductions in order to avoid investment disincentives. How generous is disputed. Based on standard finance theory and recommendations from the OECD and the IMF, the value that firms attach to future deductions depends on the risks of these, and the companies' after-tax weighted-average cost of capital cannot be applied directly. As an example, a simple model quantifies the difference between pre-tax and post-tax systematic risk when tax deductions are less risky than pre-tax cash flows. Osmundsen et al. (2015) suggest that the difference must be ignored by oil companies, since they cannot find the separate market values of tax deductions. But companies operating in different jurisdictions cannot then appreciate differences in tax systems, not even approximately, which will lead to suboptimal decisions. Tax designers may instead assume that companies have gradually adopted more sophisticated methods of investment decision making.



Reconciling Hotelling Resource Models with Hotelling's Accounting Method

Robert D. Cairns and John M. Hartwick

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.rcai
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Abstract:
In green accounting, it is seldom checked that depreciation must sum to original value. A re-examination of green accounting under this condition finds that, in a non-autonomous program, income should include capital gains. Subtle questions respecting the role and treatment of capital gains are brought to light through six models in exhaustible-resource economics. It is likely that there are sources of non-autonomy when a problem is not optimal or when there are non-priced assets—in practice, always. Accordingly, the questions raised strongly influence accounting method.





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