Abstract
We consider the notions of output and outcome in the measurement of health and education services. In principle, the national accounts production boundary encompasses outputs but not outcomes. However, we show that although output measures are different from measures of outcome, they are not independent from each other. This is most obvious when it comes to quality adjustment of outputs where implicit or explicit information about outcomes is needed.
JEL Classification: E01; O47; I10; I20
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Notes
- 1.
For documentation seehttp://www.oecd.org/document/47/0,3343,en_2825_495684_37733615_1_1_1_1,00.html.
- 2.
A first and yet incomplete draft of this handbook can be found on the website for the 2007 meeting of the OECD National Accounts Working Party:http://www.oecd.org/document/42/0,3343,en_2649_34245_38677418_1_1_1_1,00.html.
- 3.
- 4.
This is a simplification. In practice, and in the presence of transport costs or taxes, there is no unique market price and a distinction has to be made between different valuations. For example, from a consumer perspective, a valuation at purchasers prices is appropriate, which is inclusive of taxes and transportation margins. From a producer perspective, a valuation at basic prices would be more appropriate, which excludes for example taxes payable and subsidies receivable in conjunction with production or sale. The statement in the text is also a simplification in the sense that output price indices for producers and input price indices for consumers are typically compiled at different levels of aggregation and on the basis of different classifications. This may also lead to differences in weights between output price indices for producers and input price indices for consumers. However, even when aggregation happens differently in the producer and in the consumer case, the price at the lowest level of aggregation at which the transaction takes place, is a market price and reflects the joint influences of producers and consumers.
- 5.
Note that despite the fact that our discussion has been couched in terms of non-market producers, it carries over to the more general case of regulated industries. For example, Lawrence and Diewert (2006), measure the quantity index of output for New Zealand electricity utilities with a cost-based index because there are no meaningful revenue shares or prices for the three types of outputs identified for utilities: throughput of electricity, system line capacity and connections.
- 6.
For a genesis of the treatment of non-market production in the national accounts and the many issues associated with it, see Vanoli (2002).
- 7.
We note several accounting issues that would arise if the human capital approach were implemented in the national accounts. First, there is a question about the scope of inputs to and outputs from the production of educational investment goods. For example, Jorgenson and Fraumeni (1989) consider students’ time as one of the inputs into the production process. On the output side, they value not only future income from labour market activities but they also value non-market labour. Other authors, for example Ervik, Holmoy and Haegeland (2003) have argued that in a national accounts context, students’ time should not be part of inputs. They also exclude non-market labour from the output computations. This can lead to significant differences in the measured value of production of the education sector. A second issue is that the value of the education output at current prices under the human capital approach (which could be seen as a social gross production) is not necessarily equal to the value of inputs. This implies a kind of gross operating surplus for non-market producers that is hard to deal with in an established accounting framework. Ervik et al. (2003) estimate the human capital-based output for the Norvegian education sector to be around NOK 77 billion in 1995, compared to the cost-based national accounts estimate of about NOK 14 billion.
- 8.
See Triplett (2006) for a comprehensive discussion.
- 9.
Rosen (1974) demonstrated that in general, those characteristics of a product will show up in the function that are valued by consumers and that have cost implications for producers. Triplett (2006) writes on this: “It is well-established – but still not sufficiently understood – that the functional form of [the hedonic equation] cannot be derived from the form of the utility function or of the production function. Neither does [the hedonic equation] represent a ‘reduced form’ of supply and demand functions derived from [the utility and the production functions] as the term is conventionally used. Establishing these results requires consideration of buyer and seller behaviour towards characteristics]” (page 231).
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Schreyer, P. (2010). Measuring the Production of Non-Market Services. In: Biggeri, L., Ferrari, G. (eds) Price Indexes in Time and Space. Contributions to Statistics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-2140-6_9
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