Eyal Sulganik

The Straight-Line Depreciation is Wanted, Dead or Alive

We propose a simple axiomatic system that any depreciation methodÂiÂacomplying with the core of the accounting of depreciationÂiÂamust 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 methodÂiÂapartition consistency and dynamic consistencyÂiÂaand 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.

Partial Ordering of Unpredictable Mobility with Welfare Implications

We propose a partial ordering of ‘unpredictable mobility’ in the spirit of Blackwells ordering of information structures. The proposed ordering ranks mobility matrices according to the degree to which elements in a given set are likely to move from one state to another, independently of their origin. Furthermore, for an important class of transition structures, our proposed ordering implies ordering, thus carrying significant welfare implications. Moreover, whenever it exists, our partial ordering functions as a sufficient condition for a class of renowned mobility measures and thereby generates, for a subset of transition matrices, unanimous ranking among mobility indices that are not generally consistent with one another.

Can Co-Owners Agree to Disagree? A Theoretical Examination of Voting Rules in Co-Ownerships

Does there exist a voting rule to be, for example, inserted into the constitution of a newly constructed apartment building, which is likely to attract the greatest number of consumers? We analyze this and other questions within a framework in which co-owners resolve future debates by voting. We examine the conditions under which a co-owner optimally opts for unanimous, special majority, simple majority, and minority voting rules. The main innovation of the analysis is that co-owners with distinct characteristics may yet unanimously agree on the optimal voting rule. Among the other results are that the optimal level of the voting rule is non-decreasing (non-increasing) in one’s level of disutility from opposing (favoring) an accepted (a rejected) proposal. Also, while our results are generally in line with the predictions of Ellickson (1982) and the evidence of Barzel and Sass (1990), according to which heterogeneous (homogeneous) voters require (less than) a super majority voting rule, we show a possible exception to this generalization: heterogeneity, in some circumstances, may optimally lead to a minority voting rule. The results are applicable for groups such as general assemblies in apartment buildings, neighborhood councils, and others.

Tax Fraud in the Housing Market: Identification and Exploration

The real estate market is recognized as a fertile ground for tax violations. Specifically, reporting a price lower than the true transaction price in order to avoid tax payments is a prevalent technique. We propose an empirical method for identifying housing transactions that are suspected of under-reporting. Based on all reported housing transactions in Israel over the period 1998–2015, we conclude that about 8% of the transactions are under-reported, with an average price report of 30% below the projected true price. Also, the likelihood to under-report is positively associated with the total tax liability and positively (negatively) associated with the crime rate in (the socioeconomic level of) the area in which the transaction occurs. Compared to single unit owners, real estate investors are less likely to engage in under-reporting. Our empirical approach may serve tax enforcement authorities in promoting tax collection in the real estate market.

Does IFRS 10 on Consolidated Financial Statements Abandon Accepted Economic Principles

The 2007 global financial crisis revealed a deficiency in the financial reporting of off-balance-sheet vehicles. To better reflect risks associated with such items, International Financial Reporting Standard (IFRS) 10 provided new principles for determining an investor’s control of an investee for the purpose of preparing consolidated financial statements. We show that an applicative example appearing under the new guidelines contradicts the conclusion drawn from widely accepted power indices: the Shapley-Shubik value and the Banzhaf index. Our study adds to the literature aiming to incorporate methodological economic thought into accounting principles.

A Cost of Tax Planning

Tax planning is an area of growing interest and this paper is an attempt to contribute to the small formal literature on this topic. The paper analyzes the case of tax planning that manipulates the tax system to impose lower effective tax rates on gains than on losses, and proves that such tax planning may provide firms with an incentive to produce more than the social optimum. This inefficiency is different from the general inefficiency entailed by income taxation, captured by the conventional notion of excess burden. A low asymmetric tax may be more distortive than a high symmetric tax rate.

Shapley Cost Allocation Coincides With Relative Status: The Case of Skyscrapers

Empirical evidence shows that the value of units in a building generally rises with their floor level due to features such as the better view and lesser noise experienced in higher stories. We adopt a theoretical approach for examining the value of units in different floors based on the allocation of land and construction cost among the stories of the building. Relying on cooperative game theory analysis, we propose the Shapley value approach as a mechanism for allocating these costs. We examine the allocation mechanism and derive several closed-form properties by which the value pattern of stories in a building is rationalized. Furthermore, following Lakoff and Johnson (1980), we argue that agents achieve greater status from occupying higher stories because of inherent cognitive motives. We thus constitute the Relative L&J Status function and formally show that its properties coincide with those of the difference between the costs allocated to any two stories in the building, thereby, derive a new property to the Shapley solution. Finally, we empirically test the derived Shapley cost allocation properties and the attained results are consistent with our major predictions.