APPENDIX 3 VALUATION EXAMPLE
Valuation of output and value added
The valuation of the output of a NPI will be influenced by whether it is considered to be a market or non-market producer. This point can be illustrated using a simple example of an identical meal provided by a hospitality club (market producer) and a school canteen (non-market producer).
National accounts basis
Assume the hospitality club charges $10 and the school canteen charges $5. Assume that the labour, capital and intermediate inputs (ingredients etc.) that go into preparing the meal are the same.
For the market producer, output is equal to the value of sales ($10) and gross value added is output less intermediate inputs ($4), that is: $6 ($10-$4). The gross value added is comprised of labour ($4), depreciation ($1) and net operating surplus ($1).
For the non-market producer (school canteen run by paid supervisor and a roster of volunteer parents), output is measured as the cost of producing the meal: ingredients ($4), plus supervisor wages ($1) plus depreciation ($1), equals $6. Gross value added is $2 ($6-$4). The gross value added is comprised of labour ($1), and depreciation ($1). There is no net operating surplus.
In the national accounts, the output and value added of the market and non-market producer in the above example would be shown at different values, even though they produce the same product (ignoring qualitative differences including the environment in which the meal is served). The output value of the market producer is sufficient to cover all costs including a return to capital (net operating surplus). The output value of the non-market producer covers the cost of paid labour, intermediate inputs and depreciation of capital, but does not provide for a return to capital or unpaid labour.
The NPI satellite account in its second dimension addresses the issue of the value of volunteer services. This is done by using the cost of a market replacement for the volunteer service. If wage rates were the same as for the market producer, then the value of both output and valued added of the school canteen with the extended production boundary would rise by $3, with the new output being $9 compared with $10 for the market producer. The value still excludes a return to capital (net operating surplus).
Back to Main Features