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Capitalizing R&D Expenditures

Walter Diewert and Ning Huang

Economics working papers from Vancouver School of Economics

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 analysis; R&D project; intertemporal general equilibrium theory; money metric utility scaling; matching principle; amortization; deprecia (search for similar items in EconPapers)
JEL-codes: C43 C61 C67 C68 C82 D24 D42 D45 D57 D58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-01-18, Revised 2008-01-18
New Economics Papers: this item is included in nep-acc, nep-ino, nep-ipr, nep-pr~ and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Journal Article: CAPITALIZING R&D EXPENDITURES (2011) Downloads
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