The Straight-Line Depreciation is Wanted, Dead or Alive

We propose a simple axiomatic system that any depreciation method¡ªcomplying with the core of the accounting of depreciation¡ªmust obey. We show that, while none of the prevalent depreciation methods (e.g., straight-line) ex ante conforms to these principles, the accredited proportional depreciation method not only maintains the axiomatic system, but also, for a plausible family of depreciation methods, is the unique method that complies with the axiomatic system. We further propose two consistency requirements of a depreciation method¡ªpartition consistency and dynamic consistency¡ªand show that, in contrast to the commonly used methods, the proportional depreciation method is the only one to always sustain both. Our analysis may provide further resolution to the arguable evidence on the dominance of Funds From Operations over net income in measuring performance in the real estate industry.

The Value of Information: The Case of Signal-Dependent Opportunity Sets

We generalize the economic decision problem considered by Blackwell (1953) in which a decision maker chooses an action after observing a signal correlated to the state of nature. Unlike Blackwell's case where the feasible set is fixed, in our framework, the feasible set of actions depends on the signal and the information system. As we indicate such a framework has more significance to economic models. We show that in this case, contrary to Blackwell's well-known result, more information may be disadvantageous. We derive conditions for this general model which guarantee that more information is beneficial

The Value of Information: Disadvantageous Risk-Sharing Markets

The narrow applicability of Blackwell's result that "more information" is desirable, lies in the fact in economic models once a signal is observed by all economic agents their opportunity sets may vary. We show that Blackwell's theorem does not hold when the feasible set of actions is signal-dependent. We find sufficient condition for the result to hold under these conditions. We also apply this result to two economic models where risk sharing markets are widespread: A model with futures markets and hedging and a model of life cycle where the lifetime horizon is a random variable. In both cases we show that in the absence of risk-sharing markets (i.e., futures markets or life insurance markets) more information is advantageous. On the other hand, when such markets are introduced we may find many cases where more information is disadvantageous to the risk-averse agents.