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Measuring Capital

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  • W. Erwin Diewert

Abstract

The paper revisits Harper, Berndt and Wood (1989) and calculates Canadian reproducible capital services aggregates under alternative assumptions about the form of depreciation, the opportunity cost of capital and the treatment of capital gains. Five different models of depreciation are considered: (1) one hoss shay; (2) straight line depreciation; (3) declining balance or geometric depreciation; (4) linearly declining efficiency profiles and (5) linearly increasing maintenance profiles. The latter form of depreciation does not seem to have been considered in the literature before. This model assumes that there is a known time profile of maintenance expenditures that can be associated with each asset and the optimal time of retirement of the asset as well as the profile of used asset prices becomes endogenous under this specification. It turns out if the maintenance profile increases linearly, then the linearly declining efficiency profile model emerges; see (4) above. We consider 3 alternative assumptions about the interest rate and the treatment of capital gains so that we evaluate 15 models in all and compare their differences. Following Hill (2000), we also consider the differences between cross section and time series depreciation and anticipated time series depreciation (which adds anticipated obsolescence of the asset to normal cross section depreciation of the asset). Finally, we follow the suggestion made by Diewert and Lawrence (2000) that a superlative index number formula be used to aggregate up vintages of capital rather than the usual assumption of linear aggregation, which implicitly assumes that the capital services yielded by each vintage of a homogeneous type of capital are perfectly substitutable.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9526.

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Date of creation: Mar 2003
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Handle: RePEc:nbr:nberwo:9526

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  1. Jorgenson, D.W., 1994. "Empirical Studies of Depriciation," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1704, Harvard - Institute of Economic Research.
  2. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, Elsevier, vol. 4(2), pages 115-145, May.
  3. W. Erwin Diewert & Kevin J. Fox, 1999. "Can measurement error explain the productivity paradox?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 32(2), pages 251-280, April.
  4. Hulten, Charles R. & Wykoff, Frank C., 1981. "The estimation of economic depreciation using vintage asset prices : An application of the Box-Cox power transformation," Journal of Econometrics, Elsevier, Elsevier, vol. 15(3), pages 367-396, April.
  5. Kholi, U. & Fox, K., 1996. "GDP Growth, Terms-of-Trade Effects and Total Factor Productivity," Papers, New South Wales - School of Economics 96/28, New South Wales - School of Economics.
  6. Diewert, W Erwin, 1978. "Superlative Index Numbers and Consistency in Aggregation," Econometrica, Econometric Society, Econometric Society, vol. 46(4), pages 883-900, July.
  7. 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, Centre for the Study of Living Standards, vol. 2, pages 37-51, Spring.
  8. Oulton, Nicholas, 1995. "Depreciation, Obsolescence and the Role of Capital in Growth Accounting," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 21-33, January.
  9. repec:cup:macdyn:v:3:y:1999:i:1:p:48-68 is not listed on IDEAS
  10. 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.
  11. Triplett, Jack E, 1996. "Depreciation in Production Analysis and in Income and Wealth Accounts: Resolution of an Old Debate," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(1), pages 93-115, January.
  12. Maddison, Angus, 1994. "Standardised Estimates of Fixed Capital Stock: A Six Country Comparison," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen 199409, Groningen Growth and Development Centre, University of Groningen.
  13. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, Econometric Society, vol. 42(3), pages 497-516, May.
  14. Diewert, W E, 1992. "The Measurement of Productivity," Bulletin of Economic Research, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 163-98, July.
  15. Hulten, Charles R & Wykoff, Frank C, 1996. "Issues in the Measurement of Economic Depreciation: Introductory Remarks," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 34(1), pages 10-23, January.
  16. Usher, Dan (ed.), 1980. "The Measurement of Capital," National Bureau of Economic Research Books, University of Chicago Press, edition 0, number 9780226843001, 01-2013.
  17. Diewert, W. Erwin, 1999. "Index Number Approaches To Seasonal Adjustment," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 3(01), pages 48-68, March.
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Cited by:
  1. Jürgen Bitzer & Erkan Gören, 2013. "Measuring Capital Services by Energy Use: An Empirical Comparative Study," Working Papers, University of Oldenburg, Department of Economics V-351-13, University of Oldenburg, Department of Economics, revised Apr 2013.
  2. Andersen, Matthew A. & Alston, Julian M. & Pardey, Philip G., 2009. "Capital Service Flows: Concepts and Comparisons of Alternative Measures in U.S. Agriculture," Staff Papers, University of Minnesota, Department of Applied Economics 50098, University of Minnesota, Department of Applied Economics.
  3. repec:old:wpaper:351 is not listed on IDEAS
  4. Andrew Sharpe, 2003. "Why are Americans More Productive than Canadians?," International Productivity Monitor, Centre for the Study of Living Standards, Centre for the Study of Living Standards, vol. 6, pages 19-37, Spring.
  5. Claude Picart, 2005. "Evaluating The Profitability of Non-Financial Firms," Economie et Statistique, Institut National de la Statistique et des Etudes Economiques, Institut National de la Statistique et des Etudes Economiques, vol. 372, pages 89-116, February.
  6. Carol Corrado & Wendy Dunn & Maria Otoo, 2006. "Incentives and prices for motor vehicles: what has been happening in recent years?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-09, Board of Governors of the Federal Reserve System (U.S.).
  7. Sang V Nguyen & Mary L Streitwieser, 1997. "Capital-Energy Substitution Revisted: New Evidence From Micro Data," Working Papers, Center for Economic Studies, U.S. Census Bureau 97-4, Center for Economic Studies, U.S. Census Bureau.

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