Economic depreciation

In real estate, loss of value from all causes outside the property itself. For example, an expensive private home may drop in value when an industrial plant is built nearby. This is a form of economic depreciation that must be considered in the Appraisal of the property. See also Depreciation.

Loss of value from all causes outside the property itself. Also known as environmental obsolescence and external obsolescence. See Depreciation (Appraisal).
Example: An expensive private home may drop in value when an industrial plant is built nearby. This is a form of economic obsolescence that must be considered in the appraisal of the property. Causes of economic obsolescence are numerous. Noisy or unattractive highways and industrial plants cause a loss in value to nearby residences; the rate-making authority of a public utility or railroad can cause economic obsolescence to almost every railroad or public utility; polluted waterways, swamps, and obstructions of views have an adverse effect on the value of nearby property.

In economics and accounting, economic depreciation is seen as the change in the market value of capital over a given period. It is calculated as the market price of the capital at the beginning of the period minus its market price at the end of the period.

Such a method in calculating depreciation differs from other methods, such as straight-line depreciation in that it is included in the calculation of implicit cost, and thus economic profit.

See also

• Implicit cost
• Economic profit

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