Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-05T14:15:15.807Z Has data issue: false hasContentIssue false
  • English
  • Français

CAPITALIZING R&D EXPENDITURES

Published online by Cambridge University Press:  30 July 2010

W. Erwin Diewert  and
Ning Huang
W. Erwin Diewert*
Affiliation:
University of British Columbia
Ning Huang
Affiliation:
Statistics Canada
*
Address correspondence to: W. Erwin Diewert, Department of Economics, University of British Columbia, Vancouver, B.C., Canada, V6T 1Z1; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

The next international version of the System of National Accounts will recommend that R&D (Research and Development) expenditures be capitalized instead of being immediately expensed as in the present System of National Accounts 1993. An R&D project creates a new technology, which in principle does not depreciate like a reproducible asset. A new technology is, however, subject to obsolescence, which acts in a manner that is somewhat similar to depreciation. The paper looks at the net benefits of an R&D project in the context of a very simple intertemporal general equilibrium model and suggests that R&D expenditures be amortized using the matching principle that has been developed in the accounting literature to match the fixed costs of a project to a stream of future benefits. Of particular interest is the evaluation of the net benefits of a publicly funded project where the results are made freely available to the public.

Keywords

Cost–Benefit AnalysisR&D ProjectIntertemporal General Equilibrium TheoryObsolescence
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 4 , September 2011 , pp. 537 - 564
Copyright
Copyright © Cambridge University Press 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aghion, P. and Durlauf, S.N. (eds.) (2005) Handbook of Economic Growth, Volume 1A. Amsterdam: North-Holland.Google Scholar
Aghion, P. and Howitt, P.W. (1998) Endogenous Growth Theory. Cambridge, MA: MIT Press.Google Scholar
Allen, R.G.D. (1949) The economic theory of index numbers. Economica 16, 197–203.CrossRefGoogle Scholar
Balk, B.M. (1998) Industrial Price, Quantity and Productivity Indices. Boston: Kluwer Academic Publishers.Google Scholar
Balk, B.M. (2003) The residual: On monitoring and benchmarking firms, industries and economies with respect to productivity. Journal of Productivity Analysis 20, 5–47.Google Scholar
Balk, B.M. (2007) Measuring Productivity Change without Neoclassical Assumptions: A Conceptual Analysis. Paper presented at the Sixth Annual Ottawa Productivity Workshop, Bank of Canada, May 14–15.Google Scholar
Balk, B.M., Färe, R., and Grosskopf, S. (2004) The theory of economic price and quantity indicators. Economic Theory 23, 149–164.Google Scholar
Caves, D.W., Christensen, L.R., and Diewert, W.E. (1982) The economic theory of index numbers and the measurement of input, output, and productivity. Econometrica 50, 1392–1414.Google Scholar
Chambers, R.G. (2001) Consumers' Surplus as an exact and superlative cardinal welfare indicator. International Economic Review 41, 105–119.Google Scholar
Copeland, A.M., Medeiros, G.W., and Robbins, C.A. (2007) Estimating Prices for R&D Investment in the 2007 R&D Satellite Account. Bureau of Economic Analysis/National Science Foundation 2007 R&D Satellite Account background paper, Bureau of Economic Analysis, Washington, DC. http://www.bea.gov/papers/pdf/Estimation_of_prices_final.pdf.Google Scholar
Diewert, W.E. (1992a) Exact and superlative welfare change indicators. Economic Inquiry 30, 565–582.CrossRefGoogle Scholar
Diewert, W.E (1992b) The measurement of productivity. Bulletin of Economic Research 44 (3), 163–198.CrossRefGoogle Scholar
Diewert, W.E. (2005a) Constructing a capital stock for R&D investments. In The Measurement of Business Capital, Income and Performance, tutorial presented at the University Autonoma of Barcelona, September 21–22, Chap. 4; revised December. http://www.econ.ubc.ca/diewert/barc4.pdf.Google Scholar
Diewert, W.E. (2005b) Index number theory using differences instead of ratios. American Journal of Economics and Sociology 64 (1), 311–360.Google Scholar
Diewert, W.E. (2005c) Issues in the measurement of capital services, depreciation, asset price changes and interest rates. In Corrado, C., Haltiwanger, J., and Sichel, D. (eds.), Measuring Capital in the New Economy, pp. 479–542. Chicago: University of Chicago Press.CrossRefGoogle Scholar
Diewert, W.E. and Fox, K.J. (2005) On Measuring the Contribution of Entering and Exiting Firms to Aggregate Productivity Growth. Discussion paper 05-02, Department of Economics, University of British Columbia, Vancouver.Google Scholar
Diewert, W.E. and Mizobuchi, H. (2009) Exact and superlative price and quantity indicator. Macroeconomic Dynamics 13 (Supplement 2), 335–380.Google Scholar
Diewert, W.E. and Morrison, C.J. (1986) Adjusting output and productivity indexes for changes in the terms of trade. Economic Journal 96, 659–679.Google Scholar
Diewert, W.E. and Nakamura, A.O. (2003) Index number concepts, measures and decompositions of productivity growth. Journal of Productivity Analysis 19, 127–159.CrossRefGoogle Scholar
Eurostat, IMF, OECD, UN, and World Bank (1993), System of National Accounts 1993. Luxembourg/New York/Paris/Washington, DC.Google Scholar
Fox, K.J. (2006) A method for transitive and additive multilateral comparisons: A transitive Bennet indicator. Journal of Economics 87, 73–87.Google Scholar
Hicks, J.R. (1940) The valuation of the social income. Economica 7, 105–140.Google Scholar
Hicks, J.R. (1942) Consumers' surplus and index numbers. Review of Economic Studies 9, 126–137.Google Scholar
Hicks, J.R. (1945–1946) The generalized theory of consumers' surplus. Review of Economic Studies 13, 68–74.Google Scholar
Jorgenson, D.W. and Griliches, Z. (1967) The explanation of productivity change. Review of Economic Studies 34, 249–283.Google Scholar
Jorgenson, D.W. and Griliches, Z. (1972) Issues of growth accounting: A reply to Edward F. Denison. Survey of Current Business 55 (5), Part II, 65–94.Google Scholar
Kohli, U. (1990) Growth accounting in the open economy: Parametric and nonparametric estimates. Journal of Economic and Social Measurement 16, 125–136.CrossRefGoogle Scholar
Pitzer, J.S. (2004) Intangible Produced Assets. Paper presented at the London Meeting of the Canberra II Group on the Measurement of Non-Financial Assets, September 1–3.Google Scholar
Romer, P. (1994) New goods, old theory and the welfare costs of trade restrictions. Journal of Development Economics 43, 5–38.CrossRefGoogle Scholar
Samuelson, P.A. (1974) Complementarity—An essay on the 40th anniversary of the Hicks–Allen revolution in demand theory. Journal of Economic Literature 12, 1255–1289.Google Scholar
Solow, R.M. (1957) Technical change and the aggregate production function. Review of Economics and Statistics 39, 312–320.Google Scholar