On relief value (deprival value) versus fair value measurement for contract liabilities: a comment and a response

Horton, Macve and Serafeim (2011) (HMS) argue for the use of relief value for the measurement of certain types of liabilities, and that the replacement liability (an entry price) is normally the appropriate measure of relief. I had previously argued elsewhere for an exit price (normally, the performance value, PV). In this paper, I first try to clarify the terminology used, and then I show why PV rather than RL is usually appropriate for the industries in HMS' example and for some others. My scope is more modest than that of HMS because I do not address revenue/profit issues, which I think should be dealt with separately.