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CAPITALIZING R&D EXPENDITURES

Published online by Cambridge University Press:  30 July 2010

W. Erwin Diewert  and
Ning Huang
W. Erwin Diewert*
Affiliation:
University of British Columbia
Ning Huang
Affiliation:
Statistics Canada
*
Address correspondence to: W. Erwin Diewert, Department of Economics, University of British Columbia, Vancouver, B.C., Canada, V6T 1Z1; e-mail: diewert@econ.ubc.ca.
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Abstract

The next international version of the System of National Accounts will recommend that R&D (Research and Development) expenditures be capitalized instead of being immediately expensed as in the present System of National Accounts 1993. An R&D project creates a new technology, which in principle does not depreciate like a reproducible asset. A new technology is, however, subject to obsolescence, which acts in a manner that is somewhat similar to depreciation. The paper looks at the net benefits of an R&D project in the context of a very simple intertemporal general equilibrium model and suggests that R&D expenditures be amortized using the matching principle that has been developed in the accounting literature to match the fixed costs of a project to a stream of future benefits. Of particular interest is the evaluation of the net benefits of a publicly funded project where the results are made freely available to the public.

Keywords

Cost–Benefit AnalysisR&D ProjectIntertemporal General Equilibrium TheoryObsolescence
Type
Articles
Information
Macroeconomic Dynamics , Volume 15 , Issue 4 , September 2011 , pp. 537 - 564
Copyright
Copyright © Cambridge University Press 2010

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