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Fair Depreciation: A Shapley Value Approach

Author

Listed:
  • Ben-Shahar Danny

    () (Technion - Israel Institute of Technology)

  • Sulganik Eyal

    () (The Interdisciplinary Center, Herzliya)

Abstract

We adopt the Shapley value approach to examine the fair allocation of the depreciation charges among the time periods of the asset's useful life. Essentially, the allocation under the Shapley value solution rewards each time period of the asset's useful life with a share of the earnings that corresponds to its "responsibility" in the earnings-generating process. The latter is thus consistent with the developments in accounting standards, which maintain that the depreciation and amortization methods should reflect the pattern in which the asset's economic benefits are consumed by the enterprise. We show that the Shapley solution always conforms to a set of fundamental accounting requirements such as the matching principle and the impairment test. Moreover, unless the asset is associated with constant revenues and/or extremely profitable investments, the Shapley value solution can never coincide with the prevalent straight-line depreciation method. Finally, we identify the family of earnings patterns for which the Shapley solution coincides with the equal surplus and the economic depreciation methods.

Suggested Citation

  • Ben-Shahar Danny & Sulganik Eyal, 2009. "Fair Depreciation: A Shapley Value Approach," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-18, April.
  • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:13
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    References listed on IDEAS

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    1. Frédéric Chantreuil & Alain Trannoy, 2013. "Inequality decomposition values: the trade-off between marginality and efficiency," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(1), pages 83-98, March.
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    7. Ben-Shahar, Danny & Deng, Yongheng & Sulganik, Eyal, 2009. "Property appraisal in high-rises: A cooperative game theory approach," Journal of Housing Economics, Elsevier, vol. 18(1), pages 25-33, March.
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