Abstract
This paper deals with the question, what path through time should capital recovery have if regulation is to maximize welfare? It offers a three-part answer. First, the time path of capital recovery that maximizes welfare and satisfies regulatory criteria is the one that, in other industries, competition would provide. Second, economic depreciation, which provides a capital recovery schedule that matches the net cash savings used to justify a project, not straight-line depreciation, is the best approximation of that path. Third, there are no problems associated with implementing economic depreciation so great that they offset the benefits of following a better time path.
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