The molecular mechanism of the alpha-chlorocyclobutanone transposition to yield cyclopropanecarboxyIic acid, as a model of the Favorskii rearrangement, has been theoretically characterized in vacuo by means of ab initio molecular orbital procedures at the Hartree-Fock (HF) level of theory with the 6-31G* and 6-31+G* basis sets. The electron correlation has been estimated at the MP2/6-31G* level and calculations based on density functional theory, BLYP/6-31G*. The solvent effects are included at HF/6-31G* level by means of a polarizable continuum model. The questions related to the two accepted molecular mechanisms, the semibenzilic acid and the cyclopropanone transpositions, as well as the competition between both reaction pathways are addressed in this investigation. The dependence of the geometries of the stationary structures along the corresponding reaction pathways and the transition vectors associated with the transition structures upon theoretical methods is discussed. The analysis of the results shows that the electrostatic solute-solvent interactions modify appreciably the topology of the potential energy surface. The cyclopropanone mechanism is stabilized with respect to the semibenzilic acid mechanism, but this latter remains the energetically favorable reactive channel both in vacuo and in solution. The semibenzilic acid mechanism is a two-step process and the rate-limiting step corresponds to the nucleophilic attack of the hydroxyl ion on the carbon atom of the carbonyl group belonging to the alpha-chlorocyclobutanone ring. In the cyclopropanone mechanism three transition structures appear along the energy profile and the rate-limiting step is the dehydration process of the bicyclo[1.1.0]2-butanone intermediate with concomitant ring contraction and formation of the cyclopropanecarboxylic acid product.