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Bureau of Labor Statistics > Office of Survey Methods and Research > Publications > Browse Research Papers

The Measurement of Productive Capital Stock, Capital Wealth, and Capital Services

Michael J. Harper

Abstract

In order to construct measures of multifactor productivity, the Bureau of Labor Statistics has investigated a number of issues. This paper discusses several related to the vintage aggregation of capital: a primary step in the measurement of capital input. Unless a capital good's efficiency declines geometrically, its price as it ages will follow a different schedule than its efficiency. The price schedule can be calculated if we assume an efficiency schedule, a discount rate, and the vintage aggregation conditions. Capital services are proportional to a "productive stock" constructed from a perpetual inventory calculation using the age/efficiency schedule. The wealth represented by all assets is consistently estimated by doing a similar calculation using the corresponding age/price schedule. Attempts in the literature to establish that age/efficiency schedules are geometric by studying used asset prices fall short of doing so, because very different age/efficiency schedules can generate very similar age/price profiles. Arguments which rationalize the use of the geometric assumption even when efficiency does not decay geometrically lack merit. All things considered, there is little evidence regarding which age/efficiency pattern is correct, but mounting evidence that the vintage aggregation conditions are badly violated.