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Sunk Costs and the Measurement of Commercial Property Depreciation

Author

Listed:
  • W. Erwin Diewert

    (University of British Columbia and School of Economics, Australian School of Business, the University of New South Wales)

  • Kevin J. Fox

    (School of Economics, Australian School of Business, the University of New South Wales)

Abstract
This paper develops a new framework for measuring prices and quantities of commercial properties. In particular, it addresses problems associated with obtaining separate estimates for the land and structure components of a property. A key contribution is to address the problem of estimating structure depreciation taking into account the fixity of the structure. We find that structure depreciation is determined primarily by the cash flows that the property generates rather than physical deterioration of the building.

Suggested Citation

  • W. Erwin Diewert & Kevin J. Fox, 2014. "Sunk Costs and the Measurement of Commercial Property Depreciation," Discussion Papers 2014-28, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2014-28
    as

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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2014-28.pdf
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    References listed on IDEAS

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    9. Erwin Diewert, 2009. "The aggregation of capital over vintages in a model of embodied technical progress," Journal of Productivity Analysis, Springer, vol. 32(1), pages 1-19, August.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Erwin Diewert & Chihiro Shimizu, 2017. "Alternative Approaches to Commercial Property Price Indexes for Tokyo," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(3), pages 492-519, September.
    2. W. Erwin Diewert, 2022. "Duality in Production," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 3, pages 57-168, Springer.
    3. Diewert, W. Erwin, 2017. "Productivity Measurement in the Public Sector: Theory and Practice," Microeconomics.ca working papers erwin_diewert-2017-1, Vancouver School of Economics, revised 02 Feb 2017.
    4. W. Erwin Diewert & Kiyohiko G. Nishimura & Chihiro Shimizu & Tsutomu Watanabe, 2020. "Measuring the Services of Durables and Owner Occupied Housing," Advances in Japanese Business and Economics, in: Property Price Index, chapter 0, pages 223-298, Springer.
    5. Paul Schreyer & María Belén Zinni, 2021. "Productivity Measurement, R&D Assets, and Mark‐Ups in OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(4), pages 787-809, December.
    6. Amani, Elnasri & Fox, Kevin J., 2015. "R&D, Innovation and Productivity: The Role of Public Support," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 37(1), pages 73-96.
    7. W. Erwin Diewert & Kevin J. Fox & Chihiro Shimizu, 2016. "Commercial Property Price Indexes And The System Of National Accounts," Journal of Economic Surveys, Wiley Blackwell, vol. 30(5), pages 913-943, December.

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    More about this item

    Keywords

    Property price indexes; net operating income; discounted cash flow; System of National Accounts; Balance Sheets; land and structure prices; goodwill amortization; intangible assets;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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