DESIGNING NONMARKET ACCOUNTS FOR THE UNITED STATES

Interim Report

Panel to Study the Design of Nonmarket Accounts

Katharine G. Abraham and Christopher Mackie, Editors

Committee on National Statistics

Division of Behavioral and Social Sciences and Education

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS
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DESIGNING NONMARKET ACCOUNTS FOR THE UNITED STATES Interim Report Panel to Study the Design of Nonmarket Accounts Katharine G. Abraham and Christopher Mackie, Editors Committee on National Statistics Division of Behavioral and Social Sciences and Education NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, NW Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by an unnumbered contract between the National Academy of Sciences and Yale University and the Glaser Family Foundation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. Library of Congress Cataloging-in-Publication Data or International Standard Book Number 0-309-0XXXX-X Library of Congress Catalog Card Number 97-XXXXX Additional copies of this report are available from The National Academies Press, 500 Fifth Street, NW, Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu Printed in the United States of America Copyright 2003 by the National Academy of Sciences. All rights reserved. Suggested citation: National Research Council. (2003). Designing Nonmarket Accounts for the United States: Interim Report. Panel to Study the Design of Nonmarket Accounts. K.G. Abraham and C. Mackie, eds. Committee on National Statistics, Division of Behavioral and Social Sciences and Education. Washington, DC: The National Academies Press.

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THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Bruce M. Alberts is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Bruce M. Alberts and Dr. Wm. A. Wulf are chair and vice chair, respectively, of the National Research Council www.national-academies.org

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PANEL TO STUDY THE DESIGN OF NONMARKET ACCOUNTS KATHARINE G. ABRAHAM (Chair), Joint Program in Survey Methodology, University of Maryland DORA COSTA, Department of Economics, Massachusetts Institute of Technology DAVID CUTLER, Department of Economics, Harvard University NANCY FOLBRE, Department of Economics, University of Massachusetts, Amherst BARBARA FRAUMENI, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC ROBERT E. HALL, Hoover Institution, Stanford University DANIEL S. HAMERMESH, Department of Economics, University of Texas, Austin ALAN KREUGER, Woodrow Wilson School, Princeton University ROBERT MICHAEL, Harris School of Public Policy, University of Chicago HENRY M. PESKIN, Edgevale Associates, Nellysford, VA MATTHEW D. SHAPIRO, Department of Economics, University of Michigan BURTON A. WEISBROD, Department of Economics, Northwestern University CHRISTOPHER MACKIE, Study Director MARISA GERSTEIN, Research Assistant MICHAEL J. SIRI, Project Assistant

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COMMITTEE ON NATIONAL STATISTICS 2002-2003 JOHN E. ROLPH (Chair), Marshall School of Business, University of Southern California JOSEPH G. ALTONJI, Department of Economics, Yale University ROBERT BELL, AT&T Laboratories, Florham Park, New Jersey LAWRENCE D. BROWN, Department of Statistics, University of Pennsylvania ROBERT M. GROVES, Survey Research Center, University of Michigan JOEL HOROWITZ, Department of Economics, Northwestern University WILLIAM KALSBEEK, Department of Biostatistics, University of North Carolina ARLEEN LEIBOWITZ, School of Public Policy Research, University of California, Los Angeles THOMAS A. LOUIS, Department of Biostatistics, Johns Hopkins University VIJAYAN NAIR, Department of Statistics, University of Michigan DARYL PREGIBON, AT&T Laboratories, Florham Park, New Jersey KENNETH PREWITT, School of International and Public Affairs, Columbia University NORA CATE SCAHEFFER, Department of Sociology, University of Wisconsin, Madison MATTHEW D. SHAPIRO, Department of Economics, University of Michigan ANDREW A. WHITE, Director

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Acknowledgments The report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the Report Review Committee of the National Research Council (NRC). The purpose of this independent review is to provide candid and critical comments that will assist the institution in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We thank the following individuals for their participation in the review of this report: Joni Hersch, Harvard Law School; James Hines, Business School, University of Michigan; Joel Horowitz, Department of Economics, Northwestern University; J. Steven Landefeld, Bureau of Economic Analysis, U.S. Department of Commerce; and Frank Stafford, Institute for Social Research, University of Michigan Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the content of the report, nor did they see the final draft of the report before its release. The review of this report was overseen by Robert Pollak, Olin School of Business, Washington University, St. Louis. Appointed by the National Research Council, he was responsible for making certain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution.

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Contents     EXECUTIVE SUMMARY     1   INTRODUCTION         Policy and Technical Context         Panel’s Work         Panel Charge and Work Plan         Activities to Date         Previewing the Final Report     2   OBJECTIVES, SCOPE, AND PRIORITIES         Importance of Accounting for Nonmarket Activity         Scope of Augmented Accounts         Nonmarket Coverage in the National Accounts         Output Versus Welfare Measurement Goals         Priorities for Expanded Measurement: Key Nonmarket Areas     3   A CONCEPTUAL FRAMEWORK         Integrating Core and Satellite Accounts—or Not         The Inputs/Outputs Puzzle         Virtues of the Double Entry Bookkeeping Approach         Monetary Versus Nonmonetary Units of Measurement         Classifying Goods and Services         Measuring Quantities         Marginal Versus Total Valuations         Valuation in the Absence of Markets     4   DATA NEEDS         REFERENCES         APPENDIX Biographical Sketches of Panel Members and Staff