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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How asset values are determined

The central economic relationship that links the income and production perspectives to each other is the net present value condition: in a functioning market, the stock value of an asset is equal to the discounted stream of future benefits that the asset is expected to yield, an insight that goes at least back to Walras (1874) and Böhm-Bawerk (1891). Benefits are understood here as the income or the value of capital services generated by the asset.

In what follows, we shall consider a single asset, although this is clearly unrealistic: no firm, and much less a statistical agency will measure capital by looking at individual pieces of machinery or equipment. The typical case is to consider classes of assets, although an attempt is normally made to keep these classes of assets as homogenous as possible. For the moment, however, consider a single asset that is new, i.e. of age zero.

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