Author
Nairn MacGibbon
Abstract
The choice of methodology used to derive the user cost of capital services can have a significant impact on the relative weights assigned to the various assets providing an input into the production function of an industry. This paper presents an analysis of the differing methods that could be used to calculate the user cost of capital, and assesses each of the methods against a range of criteria. The analysis indicates that the use of an exogenous rate of return and excluding capital gains from the formulation of the user cost of capital provides superior results in the New Zealand context.
Exogenous vs endogenous rates of return: the user cost of capital in Statistic's NZ's multi-factor productivity measures (PDF, 666kb)