Lease vs. Purchase: A Field Study of Asset Acquisition Decisions in Municipal Government
Sharp, Florence Cowan
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Permalink
https://hdl.handle.net/2142/71372
Description
Title
Lease vs. Purchase: A Field Study of Asset Acquisition Decisions in Municipal Government
Author(s)
Sharp, Florence Cowan
Issue Date
1982
Department of Study
Accountancy
Discipline
Accountancy
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Business Administration, Accounting
Abstract
This dissertation investigates the possibility that the use of expenditure accounting by governments causes inefficiency in acquisition of assets for long-term use.
A theoretical model of governmental administrators' asset acquisition decisions is developed that assumes administrators use information generated by the accounting and budgeting systems to decide the means by which they will acquire assets. This model suggests that administrators of departments that measure and report expenditures (governmental departments) rather than expenses will attempt to control short-run expenditures rather than long-run costs. The model further suggests that administrators of departments measuring and reporting expenses (proprietary departments) will focus of long-run costs and will, therefore, acquire assets by more economical means.
Empirical evidence to test the theoretical model was obtained in field studies of three municipal governments. Using present value analysis, the personal property leases in each municipality were compared to their purchase alternatives to determine whether municipal departments using expenditure accounting acquired assets for long-term use with leases that are uneconomic and whether departments using full accrual accounting acquired assets with leases that are more economic. At the same time, all department administrators were interviewed to determine the factors that they consider in making their asset acquisition decisions.
In all three cities, departments using expenditure accounting were shown to have acquired assets for long-term use with leases that are uneconomic. In two cities, there was only one proprietary departmental lease; in the third, there were a considerable number of leases in proprietary departments. In all three cases, the dollar value of the excess cost of leasing of governmental departments exceeded that of proprietary departments. The excess cost of leasing as a percentage of purchase price was larger for the proprietary departments than for the governmental departments in each muncipality. These findings were partially explained by prior training of the administrators and by third party reimbursement policies.
Sixteen factors were identified that appear to be important in the lease/purchase decisions of governmental administrators. These factors suggest a number of possible extensions of the research. On balance, the theoretical model was well supported for governmental departments, but less conclusive for proprietary departments.
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