In this article we analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm’s investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not affect a firm’s start-up decision relative to a pure price...

This paper addresses the issue of how regulatory constraints affect firm’s investment choices when the firm has an option to delay investment. The RPI-x rule is compared to a profit sharing rule, which increases the x factor in case profits go beyond a given level. It is shown that a pure...

The well-know Johansson-Samuelson Theorem proves that, in partial equilibrium, comprehensive income taxation with a uniform tax rate is neutral in terms of investment decisions, if fiscal depreciation allowances coincide with economic depreciation. In this article we show that this result does...

The separation between a firm’s decision to evade taxes and its other choices fails to hold if an irreversible investment is introduced. This model applies the well-known Bernanke’s bad news principle, in which auditing is bad news for tax-evading firms. This article thus shows...

This article compares an ACE system with a CBIT system in an open economy. Using a real-option approach, we show that, if a firm can decide when to invest, a trade-off is found. According to traditional wisdom, a high-income firm investing in an ACE system faces a heavier tax burden at each...

This article studies the equivalence between labor and consumption taxes in a stochastic context, where the government can undertake an active portfolio management strategy by investing in both risk-free and risky assets. Using a two-period model we show that such taxes let consumers make the...

In this article, we analyse the interactions between financial and start-up decisions in an oligopolistic framework, where firms compete to enter a new market. We show that preemption can substantially reduce the negative effects of credit rationing on start-up investment decisions.

This article shows how the existing forward-looking measures of the effective tax rate may be biased when firms operate in a dynamic context. Using option pricing techniques we thus propose a measure of the effective tax rate which embodies future business changes.