Effects Of Obsolescence Research Articles

A NOTE OF THE ANALYSIS OF DEPRECIATION AND OBSOLESCENCE

Analysing depreciation and obsolescence requires a model which separates the effect of abnormal changes in the market from the underlying growth trends. The model presented by Sykes fails to recognise the economic principles involved and, therefore, gives rise to results which are open to misinterpretation. Using the best methods available it is shown that over the period from 1978–85 there is no evidence to suggest that valuers have been misinterpreting growth prospects in either the office or retail sectors. There is some evidence, however, to suggest that this may be the case as far as the industrial sector is concerned. There is insufficient data available at present to confirm whether this trend is one which is likely to be sustained over very long periods. At the practical level it is shown that by combining properties into portfolios it is possible to diversify away the effects of obsolescence.

On the importance of the embodiment of technology effect: A comment on Denison's growth accounting methodology

Denison has presented a powerful set of arguments as to why technology embodiment is not important. While his argument that embodiment does not appreciably raise the rate of return of new investment is correct, it leaves out the effect of obsolescence on measurement of the rate of return on all investment. Correctly handled, adjustment for obsolescence raises the estimated contribution of investment to growth. His calculations of the effect of new investment on average age ignore the increased retirement of old capital caused by new investment.

PERIODIC REFURBISHMENT AND RENTAL VALUE GROWTH

The market value of any property investment will tend to deteriorate over time when compared to similar modern properties if monies are not periodically expended to mitigate the effects of obsolescence. This paper examines the relationship between the initial yield of a property at purchase and the rate of future rental value growth necessary to achieve a criterion rate of return on the investment. Traditionally in calculations of the future rental growth rate required to justify an initial investment yield (when compared, say, to the rental shown by gilt‐edged stocks) the simplistic view is taken that following purchase no further expenditure is anticipated. However, if a property is to maintain its original market appeal (or adapt to evolving circumstances), capital must from time‐to‐time be injected for the purposes of refurbishment. Thus, any analytical model which ignores this inevitable expenditure, but nevertheless assumes a constant rate of long‐term future rental growth, is quite unrealistic. A Refurbishment‐Rental Growth Model is derived which allows the introduction of regular future capital expenditure both in terms of magnitude and frequency. Various examples are illustrated of the effect which such expenditure may have in necessarily increasing the required future rental growth for a property investment in order to achieve an anticipated level of return.

Closure to “Effect of Floods and Obsolescence on Bridge Life”

Closure to “Effect of Floods and Obsolescence on Bridge Life”

Effect Of Floods And Obsolescence On Bridge Life

The economics of the design of a bridge waterway opening is usually related to the return period of the design flood. A factor not usually considered in determining the frequency of replacement of a bridge is the effect of obsolescence which has a probability distribution just as floods do. A general formula is developed for a step function that defines the average replacement period where each year there is a constant probability of replacement because of destruction by flooding and a variable probability of replacement because of obsolescence. Examples are given for simple conditions. It is shown that obsolescence may have a large effect on increasing the frequency of replacement and hence on planning for future financing of bridges.

Determining Rates of Obsolescence Under Socialism

The problem of determining the scale of obsolesence is not only of theoretical interest, but is of major practical significance as well. Under the conditions of rapid technical progress characteristic of the development of a socialist economy, particularly in its present stage, discovery of the effect of obsolescence upon amortization rates, and consequently upon calculation of costs of production is of extraordinary importance. Obsolescence is a process of depreciation of fixed capital and reduction in its value due to the rise in the productivity of the labor of society. Value is, as we know, governed by the expenditure of socially necessary labor.