A Bear Trap in Using the Iowa-Curve Methodology for Property Retirements and Depreciation Charges

The Iowa-curve methodology is based on the use of survival curves and is commonly employed for estimating the useful life of industrial property subject to depreciation charges. This article is an overview of this methodology. We point out some of the problems associated with it, and suggest ways of...

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Bibliographic Details
Published in:The American statistician 1989-02, Vol.43 (1), p.12-16
Main Authors: Deming, W. Edwards, Singpurwalla, Nozer D.
Format: Article
Language:English
Subjects:
Accounting
Age
Business structures
Depreciation
Depreciation charges
Industrial property
Mandatory retirement
Mixtures
Paradoxes
Probable life
Property titles
Rate setting
Reliability
Retirement age
Service life
Simpson's paradox
Statistics
Survival curves
Taxation
Taxes
Citations: Items that this one cites
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Summary:The Iowa-curve methodology is based on the use of survival curves and is commonly employed for estimating the useful life of industrial property subject to depreciation charges. This article is an overview of this methodology. We point out some of the problems associated with it, and suggest ways of rectifying them. When there is paucity of retirement data for a single group of properties, the methodology calls for the consolidation of properties from different groups. We point out that such consolidations can lead to the gross underestimation of useful life due to an apparent paradox, which is reminiscent of Simpson's paradox.
ISSN:0003-1305
1537-2731
DOI:10.1080/00031305.1989.10475598