Constructing a Price Deflator for R&D: Calculating the Price of Knowledge Investments as a Residual

42 Pages Posted: 27 Jul 2012

See all articles by Carol A. Corrado

Carol A. Corrado

The Conference Board; Georgetown University - Center for Business and Public Policy

Peter Goodridge

Imperial College Business School

Jonathan Haskel

Imperial College Business School

Date Written: August 30, 2011

Abstract

We model the production and use of knowledge investment and show how the model can be used to infer the unknown price of knowledge using two approaches. The first is often used by national accounting offices and is based on costs in the knowledge-producing sector. We show this implicitly assumes no market power and no productivity in the production of knowledge. We set out an alternative approach that focuses on the downstream knowledge-using sector, the final output sector. The science policy practice of using the GDP deflator is a simple variant of this approach, while the full approach allows market power and implies backing out the price of R&D from final output prices, factor costs, and TFP. We estimate a R&D price for the United Kingdom from 1985 to 2005 using the full approach. The index falls strongly relative to the GDP deflator suggesting conventionally-measured real R&D is substantially understated.

Keywords: R&D, economic growth, technological change, economic measurement

JEL Classification: O3, O4

Suggested Citation

Corrado, Carol A. and Goodridge, Peter and Haskel, Jonathan E., Constructing a Price Deflator for R&D: Calculating the Price of Knowledge Investments as a Residual (August 30, 2011). Available at SSRN: https://ssrn.com/abstract=2117802 or http://dx.doi.org/10.2139/ssrn.2117802

Carol A. Corrado (Contact Author)

The Conference Board ( email )

845 Third Avenue
New York, NY 10022
United States
202-340-0252 (Phone)

Georgetown University - Center for Business and Public Policy ( email )

Washington, DC 20057
United States

HOME PAGE: http://cbpp.georgetown.edu

Peter Goodridge

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Jonathan E. Haskel

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

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