Measuring Non-market Output in the National Accounts

by:Robin Lynch

Discussant notes Peter van de Ven

Fokke & Sukke want railway company back in government“One can say a lot about civil servants, ….

but they always leave on time”

General introduction

Non-market services– SNA 1993: Services produced by government and NPISHs that are supplied free or at economically insignificant prices– ESA 1995: Sales < 50% of costs of production

No economically significant prices available

By convention: value of output = sum of costs:– Intermediate consumption– Wages and salaries– Depreciation– (User cost of capital)

General introduction, continued

Volume measurement of non-market services:

Input methods:– (Detailed) deflation of inputs– Deflation of wages and salaries using e.g. collective

wage agreements

By definition: (multifactor) productivity = 0

Criticism: input methods do not properly reflect the change in the volume of services provided => output indicators

– SNA 1993: para. 16.133 and 16.134– Handbook on Price and Volume Measures in NA– Atkinson Review

Measurement of healthcare in UK

80

90

100

110

120

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140

1995 1996 1997 1998 1999 2000 2001 2002

Inputs Output Productivity

General introduction, continued

Issues and problems related to output methods:

– Individual versus collective services– Unit of measurement

– Activity (e.g. days in hospital, operations)– Output (e.g. treatments) = outcome attributable to the

relevant productive activity– Outcome (e.g. life expectancy)

– Measurement of quality– Direct survey– Quality of inputs– Outcome indicators

– Additional benefits from public services as a consequence of additional (future) income and/or assets

Robin Lynch:

Main criticism of Robin Lynch

Output methods assume an equivalence between non-marketed output and marketed output => non-marketed output is fundamentally different:– Inconsistent with fundamentals of the 1993 SNA

No price is charged => no value can be observed No market mechanism for the determination of the

nature of the services => consumer marginal utilities are not properly reflected

– Often, one has to rely on activity indicators => such indicators are not representative– Quality changes impossible to capture

Economically more meaningful concept: capacity to deliver = deflated inputs

Robin’s Island

Year Qualification No of pupils

Salary teacher

Exam passes

2000 Standard 3 50,000 1

2001 Standard 3 50,000 3

2002 Standard 0 50,000 0

2003 Higher 0 55,000 0

2004 Higher 1 55,000 0

2005 Higher 2 55,000 0

Questions and remarks

– Collective versus individual services important: Collective services: “capacity to deliver” Individual services: price and value of the output

may not be observable, but what about the volume of the output?

– Inconsistency with SNA? In value terms, government is recognised as

producer of services– No market mechanism?

Consumer preferences via democratic elections? Many non-market services have inflexible demand By and large, consumer preferences are reflected

– Activity indicators, quality change? Fundamentally different for market services?

– How to deal with additional benefits?