Measuring Capital - OECD Manual 2009
Second edition
Capital - in particular of the physical sort - plays several roles in economic life: it constitutes wealth and it it provides services in production processes. Capital is invested, disinvested and it depreciates and becomes obsolescent and there is a question how to measure all these dimensions of capital in industry and national accounts. This revised Capital Manual is a comprehensive guide to the approaches toward capital measurement. It gives statisticians, researchers and analysts practical advice while providing theoretical background and an overview of the relevant literature. The manual comes in three parts - a first part with a non-technical description with the main concepts and steps involved in measuring capital; a second part directed at implementation and a third part outlining theory and a more complete mathematical formulation of the measurement process.
The Model
The purpose of this chapter is to present, at some detail, the formal model behind capital measures. Although theoretical, this presentation is targeted towards implementation, i.e. it takes account of issues such as valuation of flows at mid-period prices that are relevant for national accounts and which sometimes complicate an algebraic presentation. At the same time, these considerations are indispensable for implementation of capital services measures. This part of the Manual starts out with a chapter on the derivation of user costs and its elements, the return to capital, depreciation and revaluation. It continues with the price-volume split of the value of capital services and finishes with capital measures in balance sheets.
National accounts never work with individual assets but with cohorts. Individual assets inside a cohort are similar (ideally identical) in their specifications, were installed at the same time but exhaust their individual productive capacities over different service lives. In what follows, all variables relate to cohorts of assets, not to individual assets.