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Ex Post Versus Ex Ante Measures of the User Cost of Capital

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  • Nicholas Oulton

Abstract

When doing growth accounting, should we use ex post or ex ante measures of user costs to calculate the contribution of capital? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalised across assets. But this is only true if expectations are correct. A numerical example shows that either ex ante or ex post can be closer to the true measure, depending on the parameters. I propose a hybrid method that makes use of elements of both approaches. I test this and the other methods using data for 31 UK industries.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0698.

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Date of creation: Jul 2005
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Handle: RePEc:cep:cepdps:dp0698

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: User cost; capital; ex post; ex ante; growth accounting;

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  1. Nicholas Oulton & Sylaja Srinivasan, 2003. "Capital stocks, capital services, and depreciation: an integrated framework," Bank of England working papers 192, Bank of England.
  2. Christensen, Laurits R & Jorgenson, Dale W, 1969. "The Measurement of U.S. Real Capital Input, 1929-1967," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 15(4), pages 293-320, December.
  3. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
  4. W. Erwin Diewert, 1980. "Aggregation Problems in the Measurement of Capital," NBER Chapters, in: The Measurement of Capital, pages 433-538 National Bureau of Economic Research, Inc.
  5. Paul Schreyer & Pierre-Emmanuel Bignon & Julien Dupont, 2003. "OECD Capital Services Estimates: Methodology and a First Set of Results," OECD Statistics Working Papers 2003/6, OECD Publishing.
  6. Paul Schreyer, 2001. "The OECD Productivity Manual: A Guide to the Measurement of Industry-Level and Aggregate Productivity," International Productivity Monitor, Centre for the Study of Living Standards, vol. 2, pages 37-51, Spring.
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Cited by:
  1. Nicholas Oulton, 2010. "Long Term Implications of the ICT Revolution: Applying the Lessons of Growth Theory and Growth Accounting," CEP Discussion Papers dp1027, Centre for Economic Performance, LSE.
  2. Nicholas Oulton & Ana Rincon-Aznar, 2009. "Rates of Return and Alternative Measures of Capital Input: 14 Countries and 10 Branches, 1971-2005," CEP Discussion Papers dp0957, Centre for Economic Performance, LSE.
  3. Dale W. Jorgenson & Marcel P. Timmer, 2011. "Structural Change in Advanced Nations: A New Set of Stylised Facts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 1-29, 03.
  4. Bert M. Balk, 2007. "Measuring Productivity Change without Neoclassical Assumptions: A Conceptual Analysis," CEPA Working Papers Series WP042007, School of Economics, University of Queensland, Australia.
  5. Voskoboynikov, Ilya B. & Timmer, Marcel, 2013. "Is Mining Fuelling Long-run Growth in Russia? Industry Productivity Growth Trends since 1995," GGDC Research Memorandum GD-137, Groningen Growth and Development Centre, University of Groningen.
  6. Andrew Street & Padraic Ward, 2009. "NHS input and productivity growth 2003/4 - 2007/8," Working Papers 047cherp, Centre for Health Economics, University of York.
  7. Nicholas Oulton, 2009. "How to Measure Living Standards and Productivity," CEP Discussion Papers dp0949, Centre for Economic Performance, LSE.
  8. World Bank, 2013. "Measuring the Real Size of the World Economy : The Framework, Methodology, and Results of the International Comparison Program—ICP," World Bank Publications, The World Bank, number 13329, January.
  9. Paul Schreyer, 2007. "Old and New Asset Boundaries: A Review Article on Measuring Capital in the New Economy," International Productivity Monitor, Centre for the Study of Living Standards, vol. 15, pages 75-80, Fall.

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