Measuring Capital - OECD Manual 2009

Second edition

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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.

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Age-efficiency Profiles

The age-efficiency profile of a single asset describes the time pattern of productive efficiency of the asset as it ages. The specific form of the age-efficiency profile is an empirical issue although solid empirical evidence is scarce and often replaced by plausible assumptions. The age-efficiency function of a single asset reflects losses in efficiency due to wear and tear as well as certain effects on service lives. For example, if obsolescence affects an asset’s economic service life – e.g., because secular rises in energy prices or real wage increases make it unprofitable to use an asset after a certain number of years – this may affect the maximum service life, a parameter of the age-efficiency function. Obsolescence could then imply retirement of an asset, which amounts to an unchanged age-efficiency function up to the point of retirement and a drop to zero at this point.

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