Ex Post Versus Ex Ante Measures Of The User Cost Of Capital

Topics:
Organization
Tags:
Asset Management,
Business Operations,
Finance,
Financial Services,
London School Of Economics,
Operational Accounting,
Operational Planning
Source:
London School of Economics and Political Science

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Overview: When doing growth accounting, should we use ex post or ex ante measures of user costs to calculate the contribution of capital? The answer, based on a simple model of temporary equilibrium, is that ex post is better in theory. In practice researchers usually calculate ex post user costs by assuming that the rate of return is equalised across assets. But this is only true if expectations are correct. A numerical example shows that either ex ante or ex post can be closer to the true measure, depending on the parameters. The author proposes a hybrid method that makes use of elements of both approaches. He tests this and the other methods using data for 31 UK industries.

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Format: PDF | Size: 660KB | Date: Jul 2005 | Pages: 41

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