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The Measurement of Nonmarket Sector Outputs and Inputs Using Cost Weights

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  • Diewert, Erwin

Abstract

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.

Suggested Citation

  • Diewert, Erwin, 2008. "The Measurement of Nonmarket Sector Outputs and Inputs Using Cost Weights," Economics working papers diewert-08-01-18-09-21-07, Vancouver School of Economics, revised 13 Nov 2008.
  • Handle: RePEc:ubc:bricol:diewert-08-01-18-09-21-07
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    File URL: http://www.econ.ubc.ca/diewert/dp0803.pdf
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    References listed on IDEAS

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    1. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, vol. 42(3), pages 497-516, May.
    2. W. Erwin Diewert & Ann Marie Smith, 1994. "Productivity Measurement for a Distribution Firm," NBER Working Papers 4812, National Bureau of Economic Research, Inc.
    3. Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
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    8. 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.
    9. Fixler, Dennis & Zieschang, Kimberly D, 1991. "Measuring the Nominal Value of Financial Services in the National Income Accounts," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 53-68, January.
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    12. Nancy D. Ruggles & Richard Ruggles, 1970. "Introduction to "The Design of Economic Accounts"," NBER Chapters,in: The Design of Economic Accounts, pages 1-7 National Bureau of Economic Research, Inc.
    13. Dennis Fixler, 2009. "Incorporating Financial Services in a Consumer Price Index," NBER Chapters,in: Price Index Concepts and Measurement, pages 239-266 National Bureau of Economic Research, Inc.
    14. Jorgenson, Dale W & Fraumeni, Barbara M, 1992. " Investment in Education and U.S. Economic Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages 51-70, Supplemen.
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    17. Donal J. Donovan, 1978. "Modeling the Demand for Liquid Assets: An Application to Canada (Etablissement d'un modèle de demande d'actifs liquides: application au Canada) (Construcción de un modelo de demanda de activos líqu," IMF Staff Papers, Palgrave Macmillan, vol. 25(4), pages 676-704, December.
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    Cited by:

    1. Andrew Sharpe & Ricardo de Avillez, 2012. "A Detailed Analysis of Nova Soctia;s Productivty Performance, 1997-2010," CSLS Research Reports 2012-05, Centre for the Study of Living Standards.
    2. Wulong Gu & Jiang Li, 2015. "Productivity in Residential Care Facilities in Canada, 1984-2009," International Productivity Monitor, Centre for the Study of Living Standards, vol. 29, pages 18-37, Fall.
    3. Ricardo de Avillez, 2014. "A Detailed Analysis of Productivity Trends in the Canadian Forest Products Sector," CSLS Research Reports 2014-01, Centre for the Study of Living Standards.
    4. Evan Capeluck, 2016. "A Comparison of Australian and Canadian Productivity Performance: Lessons for Canada," CSLS Research Reports 2016-07, Centre for the Study of Living Standards.
    5. Leonard I. Nakamura, 2010. "Intangible Assets And National Income Accounting," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(s1), pages 135-155, June.
    6. repec:kap:ijhcfe:v:17:y:2017:i:4:d:10.1007_s10754-017-9217-9 is not listed on IDEAS
    7. Gang Liu, 2015. "A stylized satellite account for human capital," Discussion Papers 816, Statistics Norway, Research Department.

    More about this item

    Keywords

    Measurement of output; input and productivity; nonmarket sector; health; education; general government; cost functions; duality theory; marginal cost;

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E23 - Macroeconomics and Monetary Economics - - 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, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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