In many sectors of the economy, governments either provide various services at no cost or at highly subsidized prices. Examples are the health, education and general government sectors. The System of National Accounts 1993 recommends valuing these nonmarket outputs at their costs of production but it does not give much guidance on exactly how to do this. In this paper, an explicit methodology is developed that enables one to construct these marginal cost prices. However, in the main text, an activity analysis approach is taken in order to simplify the analysis, so in particular, constant returns to scale, no substitution production functions for the specific activities in the nonmarket sector are assumed. It is shown that it is possible to obtain meaningful measures of Total Factor Productivity growth in this framework. An Appendix relaxes some of the restrictive assumptions that are used in the main text.
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Paper provided by UBC Department of Economics in its series UBC Departmental Archives with number
diewert-08-01-18-09-21-07.
Find related papers by JEL classification: C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production H40 - Public Economics - - Publicly Provided Goods - - - General H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education I10 - Health, Education, and Welfare - - Health - - - General I20 - Health, Education, and Welfare - - Education - - - General O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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