Beyond the Market Designing Nonmarket Accounts for the United States (2005) / Chapter Skim
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1 Introduction
1 Introduction
Pages 9-38
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From page 9... ...
, concerns have been voiced that the national income and product accounts are incomplete. The venerable NIPAs meet rigorous standards and enjoy broad acceptance among data users interested in tracking economic activity.
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From page 10... ...
One event alone -- the development and recent publication of the American Time Use Survey -- justifies a new round of thinking about nonmarket accounting issues. In this report we hope to encourage social scientists to pursue the analysis of nonmarket activities and the development of corresponding data collection and accounting systems.
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From page 11... ...
The rest of this chapter discusses the motivation for this study, priorities for nonmarket accounting, and issues relating to account scope and conceptual framework. Chapter 2 identifies and describes accounting and data issues -- particularly issues related to the measurement of time use -- that are key to both market and nonmarket accounts.
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MOTIVATION Extending the nation's accounting systems to better incorporate nonmarket production promises substantial benefits to policy makers and researchers. One objective of improved nonmarket accounting is to support alternative aggregate measures of economic performance.
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Researchers studying this topic have long found it necessary to supplement data from the national accounts with external estimates of the contributions of research and development, investments in human capital, and the services of the natural environment (Mankiw et al., 1992)
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Time is the dominant input to nonmarket production, and the lack of good measures of how people spend their time has seriously handicapped work in this area. The panel is optimistic that the newly developed American Time Use Survey, produced by the BLS, will spur new work to develop informative nonmarket accounts.
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From page 15... ...
Similar, straightforward imputations could serve as a basis for price estimation for some nonmarket items excluded from coverage in the national accounts but, for many others, such a close comparison will not be possible. While the national accounts exclude the output resulting from many areas of nonmarket activity, information relevant to these activities often is included.
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From page 16... ...
Similarly, where no consensus yet exists regarding the best way to measure a particular area of nonmarket activity, satellite accounts allow for the flexibility to experiment with alternative methodologies that might go against convention. The goal is to extend the accounting of the nation's productive inputs and outputs, thereby providing a framework for examining the production functions of some difficult-to-measure nonmarket activities.
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The panel views the accounting frameworks described in this report as harmonious with these definitions and concludes that, for a number of industries and sectors with significant nonmarket components, satellite accounts can be developed that will generate meaningful and useful data to inform policy and to advance research. Measurement Objectives Although they are widely used in comparisons intended to shed light on trends and relative levels of national well being, the national accounts are not designed to measure the welfare of the population or the contributions to welfare associated with particular sectors.
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This position can be defended on practical measurement, as well as conceptual, grounds. Accounting for nonmarket activities and results that parallel those already represented in the national accounts would enable the developers of the new accounts to build more directly on past
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This criterion seems appropriate for certain areas -- for example, a household production account could be designed to include such things as meals, clothing services, shelter services, and a basic component of child care, but to exclude fertility, studying, and exercise. For other areas of nonmarket activity, such as education and health, the third-party criterion is clearly inappropriate: there is no replacement for self involvement in the activities required to enhance a person's cognitive skills or improve his or her health-activities that nonetheless produce valuable but nonmarketable capital outputs.
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Within the set of outputs that might conceivably be of interest, the panel believes that priority should be given to the development of experimental accounts for areas that incrementally expand coverage of the conventional market accounts. The chapters that follow discuss several specific areas that the panel believes to be among the most promising and to which we accordingly give top priority: · household production, · investments in formal education and the resulting stock of skill capital, · investments in health and the resulting stock of health capital, · selected activities of the government and nonprofit sectors, and · environmental assets and services.
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From page 21... ...
.3 Consistent with this view that the satellite accounts should expand incrementally from the conventional accounts, the value of pleasure derived from the process of producing nonmarket outputs also is not part of the nonmarket satellite accounts the panel proposes. For example, the pleasure a person derives from cooking at home should not be part of a household production account, just as the pleasure from working as a professional chef is not included in the NIPAs.
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From page 22... ...
The panel sees no realistic alternative to considering the different areas of nonmarket activity separately, but nonetheless recognizes the need to delineate the interactions and complementarities among them as the development of supplemental accounts proceeds. Because the accounts proposed by the panel in this report will unavoidably overlap with one another (and with the market accounts)
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From page 23... ...
A CONCEPTUAL FRAMEWORK The national accounts have proven extraordinarily useful as a vehicle for monitoring and studying the evolution of the economy. They have the intentional restriction, of course, that they do not systematically incorporate nonmarket activity, but their strong conceptual foundations provide an example that any newly developed nonmarket satellite account would do well to take as a starting point.
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An alternative approach to valuing capital services -- and one that seems applicable to the nonmarket accounts -- would be to use a standard measure of the flow cost of capital. Such a measure would be constructed using information on the value of the capital employed to produce the nonmarket output and an assumed market rate of return to that capital.
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From page 25... ...
Only with an independent measure of the value of nonmarket output, however, can one hope to address many of the questions for which nonmarket accounts could be most valuable. Recommendation 1.3: Nonmarket accounts should measure the value and quantity of outputs independently from the value and quantity of inputs whenever feasible.
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Externalities Where the state of theoretical modeling efforts and available source data permit, it would be extremely useful if satellite accounts included estimates of externalities associated with the covered activities. In this respect, satellite accounts would differ markedly from the NIPAs.
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Although there are practical difficulties that complicate estimation of the stock of capital equipment used in home production, the basic approach is well developed.5 An especially important nonmarket input on which, until very recently, quantity data have been lacking is the time devoted to nonmarket production. Fortunately, the American Time Use Survey (ATUS)
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Assigning Prices Anyone contemplating the development of nonmarket accounts must decide how best to value inputs and outputs in the various accounts, given the absence of prices. Valuation typically involves finding market analogues for the nonmarket
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In both cases -- the lawyer performing work for a charity or the highly compensated person cooking meals at home -- use of an unadjusted opportunity cost wage to value the time spent in activities the individual finds enjoyable would overstate the cost of inputs to nonmarket activities and understate their productivity. We turn to economic theory for guidance in attaching an appropriate replacement cost value to time spent in nonmarket activities that someone else could have been hired to perform.
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More fundamentally, even beyond the difficulty of measuring the opportunity cost associated with time devoted to nonmarket production, one would want
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Provided that individuals are able to equalize the marginal value of time across all of the activities in which they engage, the adjusted opportunity cost measure we advocate for valuing tasks that someone else cannot be hired to perform is conceptually equivalent to the adjusted replacement cost measure that seems most appropriate for valuing time devoted to nonmarket activities satisfying Reid's third-party criterion. To see why this is so, return to the roofing example discussed above.
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From page 32... ...
Additional factors, such as taxes, complicate the relationship between opportunity and replacement costs. All else the same, income taxes reduce the opportunity cost of a person's own time devoted to nonmarket production, but not the replacement cost of hiring someone else to perform the task.
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From page 33... ...
In some cases, there may be differences in quality between home-produced outputs and market outputs, just as there may be between home and market production inputs. In principle, the valuation of nonmarket outputs should take into account any differences in the quality of those outputs as compared to similar market outputs, much as we proposed for the valuation of nonmarket as compared to market labor inputs.
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From page 34... ...
As indicated above, we would argue strongly that attention should be directed first to those categories of nonmarket output for which the most defensible, market-based approaches to valuation are possible. Counting and Valuation Issues The national accounts have a consistent structure for reporting prices and corresponding quantities.
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From page 35... ...
. The counterposition holds that, without an attempt to assign monetary values to the quantity indicators that are the basic unit of measurement for nonmarket outputs, it will be difficult for policy makers to digest and use the information (see, e.g., National Research Council, 1999, p.
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Pr D Q* Quantity Consumer Surplus Total Consumer Spending on the Good FIGURE 1-1 Consumer surplus.
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From page 37... ...
It is meaningless, in a national income accounting context, to estimate total value for existing products. Sometimes total value data will be needed for a cost-benefit analysis, and this is fine; cost-benefit analysis and national accounts rest on different conceptual ideals and objectives.
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Key Terms
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