Formerly Graduate School of Industrial Administration (GSIA)
William Larimer Mellon, Founder
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Pittsburgh, Pennsylvania 15213-3890
United States of America

Pierre Jinghong Liang
Associate Professor of Accounting

New Classical Income Measurement: A Choice-Theoretic Axiomatic Approach

Jeremy Bertomeu
Pierre Jinghong Liang
Carnegie Mellon University
 

June 2007
 
Downloading the paper
2006-Jun First Draft
2007-Jun Second Draft
 
Abstract
At the fundamental level, the key challenge to a theory of income measurement is to resolve the problem caused by soft information, which leads to incomplete preferences within the entity (i.e. some alternatives are not always unambiguously ranked). This paper presents a formal axiomatic foundation for income measurement, building on several recent developments in the economic theory of choice. We first design a meaningful income measure for an entity with incomplete preferences. When there is enough hard information, this measure consists of finitely-many performance criteria (Line-Item Income Measure) which fully represent the incomplete decision problem of the entity. Second, a single-valued income measure (Summary Income Measure) is introduced, which extends classical income to incomplete preferences. Third, these measures can be operational and exhibit recognizable features such as linear aggregation over time and individual operating units.
   
   
   
   

  English Version
Last updated November 21, 2007
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Last updated January 6, 2004
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