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A Game Theory-based Verification of Social Norms:An Example from Accounting Rules

Author

Listed:
  • Eiko Arata

    (Faculty of Business and Commerce, Keio University)

  • Takuhei Shimogawa

    (Faculty of Economics, Musashi University)

  • Takehiro Inohara

    (Institute for Liberal Arts, Tokyo Institute Technology)

Abstract

This study develops a model that explains why accounting standards, known as Generally Accepted Accounting Principles, are "generally accepted". We focus on depreciation, for which multiple accounting procedures are permitted, and examine the reasons and conditions for acceptance of these procedures with cooperative game theory. Cost allocations given by the straight-line method, which is conventionally used all over the world, are always in the core. On the other hand, cost allocations given by the fair value measurement, which has been recently supported by the International Accounting Standards Board (IASB), are in the core if the market value of the asset predicted by the lease company realizes and the firm (lessee) can obtain the information of the realized value. Furthermore, we examined the relationship between methods adopted in practice and solution concepts that give unique solutions, such as the Shapley value and the nucleolus. Seeking the original solution concept of accounting standards is our next step.

Suggested Citation

  • Eiko Arata & Takuhei Shimogawa & Takehiro Inohara, 2022. "A Game Theory-based Verification of Social Norms:An Example from Accounting Rules," Keio-IES Discussion Paper Series 2022-007, Institute for Economics Studies, Keio University.
    • Handle: RePEc:keo:dpaper:2022-007
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    References listed on IDEAS

    as
    1. Potters, Jos A M, 1991. "An Axiomatization of the Nucleolus," International Journal of Game Theory, Springer;Game Theory Society, vol. 19(4), pages 365-373.
    2. SCHMEIDLER, David, 1969. "The nucleolus of a characteristic function game," LIDAM Reprints CORE 44, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. S. C. Littlechild & G. Owen, 1973. "A Simple Expression for the Shapley Value in a Special Case," Management Science, INFORMS, vol. 20(3), pages 370-372, November.
    4. Shizuki Saito, 2011. "Accounting Standards and Global Convergence Revisited: Social Norms and Economic Concepts," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 1, pages 105-117, December.
    5. 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.
    6. Roth, Ae & Verrecchia, Re, 1979. "Shapley Value As Applied To Cost Allocation - Reinterpretation," Journal of Accounting Research, Wiley Blackwell, vol. 17(1), pages 295-303.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Depreciation; Cooperative game theory; Accounting;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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