Estimation of R&D depreciation rates: a suggested methodology and preliminary application

Abstract

The 2008 version of the SNA has recommended capitalization of R&D expenditures. To implement this recommendation, we need to determine the depreciation rate of R&D capital. In this paper, we develop a simple model, based on a production function method that allows for monopolistic competition, to estimate the annual depreciation rate of R&D capital. We treat R&D capital as a technology shifter instead of as an explicit input factor. Both the R&D stock and the time variable are used to capture technological progress. Estimated R&D depreciation rates and markup factors are presented for the U.S. manufacturing sector and four U.S. knowledge-intensive industries. JEL classification: C32, C43, C81, D24, D43, D92 Estimation des taux de dépréciation pour la R-D : une méthodologie suggérée et une application préliminaire. L'édition 2008 du SCN recommande la capitalisation des dépenses en R-D. Pour mettre en oeuvre cette recommandation, il est nécessaire d'estimer un taux de dépréciation pour la R-D. Dans le présent article, nous développons un modèle simple, basé sur la méthode dite de fonction de production caractérisée par la concurrence monopolistique pour estimer le taux de dépréciation annuel de la R-D. Nous traitons la R-D comme un levier de la technologie plutôt qu'un facteur de production explicite. Le stock de R-D et la variable temps sont utilisés pour traduire le progrès technologique. Le taux de dépréciation estimé de la R-D et un coefficient de 'mark-up' sont présentés pour le secteur manufacturier desÉtats-Unis et pour quatre de leurs industries du savoir.The views expressed in this paper are those of the authors and do not reflect those of Statistics Canada. The authors thank the SSHRC for financial support and acknowledge very helpful discussions with Alice Nakamura and Paul Schreyer, and two anonymous referees for their helpful comments. We also thank Marc Prud'homme for translating the abstract into French. All errors are ours.

Econometric Evidence on the R&D Depreciation Rate

“…The depreciation rate of R&D capital is one of the parameters of their model. Other production models include Bernstein and Mamuneas (2006) and Huang and Diewert (2011). Because these models are estimated at the economy or industry level, the returns to R&D implicitly include some degree of spillovers beyond the R&D-performing firm, and hence reflect to some degree the social rather than the private depreciation rate.…”

Capital maintenance and depreciation over the business cycle

“…Our model is found to perform well in replicating key stylized facts and allows us to assess, for the first time, the time profile of endogenous capital depreciation based on a general equilibrium framework. Several studies have attempted to estimate the depreciation rate, mainly in US manufacturing, using various econometric approaches within single or multi-equation empirical setups (see Epstein and Denny, 1980;Wykoff, 1981a, 1981b;Prucha, 1996a, 1996b;Jorgenson, 1996;Huang and Diewert, 2011). The general claim in the literature is that the depreciation rate has been fairly stable and that a constant depreciation rate may be a valid approximation for empirical work.…”

Productivity Measurement, R&D Assets, and Mark‐Ups in OECD Countries

“…A second issue associated with R&D capital is how its services enter the production process and the consequences for productivity measurement. This was highlighted in the work by Parham (2006), Pitzer (2004), and Huang and Diewert (2011). Pitzer (2004) observed that R&D capital functions as a source of “recipes.” Diewert and Huang (2011) started their discussion of R&D assets by explaining that “we do not treat the stock of R&D capital as an explicit input factor.…”