Service lives of R&D
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• Other fixed capital stocks measured
directly or through PIM.
• Direct measurement of value of stocks
of R&D is much more difficult, since
R&D is by definition unique (no market
price), much is own account production,
and it may not be registered as an asset
by the enterprises.
• Means that R&D stocks will have to be
estimated using PIM, so that data on
service lives are needed.
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• The length of R&D service lives has been
estimated in academic research in the past
using various assumptions.
• In more recent work, panel data detailed
by industry were used, and differences in
service lives over time and between
industries were explored.
• Diewert (2005) found most of these
econometric models unsatisfactory, but
considered it possible to estimate the
depreciation patterns using improved
models.
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• Following a suggestion from Charles
Aspden (OECD) the Central Bureau
of Statistics in Israel has examined an
alternative solution from the beginning
of 2007: obtaining information on
service lives directly from producers
or users of R&D, similarly to what is
done to estimate service lives for
tangible assets.
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The pilot survey - framework
• Data from important R&D performers
in main industries.
• If imports of R&D are very common,
collection of data should also be
made in framework of a regular
business survey.
• New survey on exports and imports
of services indicates that imports of
R&D significant in some industries.
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The pilot survey - framework
• Many important R&D performers
produce R&D used by businesses
abroad.
• Their data on service lives less
relevant for domestic capital. But due
to their experience may be used for
expert opinions for international use.
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Choice of contact persons
• A VC funds expert: the preferred respondents Vice
President of R&D, CTO (Chief Technical Officer), or if
it is an R&D enterprise, Product Manager. Marketing
people or financial managers may not have the
relevant information.
• A number of representatives for each enterprise were
interviewed. Financial managers sometimes were
reluctant to respond. But R&D managers understood
the questions well, supplied all information, often
added important information that could improve the
survey.
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2 stages of the pilot survey
• 1. stage: survey using only personal
interviews, one or two representatives from
survey department and representative from
NA unit. Long questionnaire to determine
how to pose the shorter questions in a
regular survey.
• 2. stage: shorter questionnaire sent by mail.
For first batch sent, follow-up with a
personal interview – to get respondents
opinion. The second batch only by mail.
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Information collected
Length of stages covered in questionnaire:
• Gestation lag : time lag between start
and completion of R&D projects. Longer
than a year for almost all R&D.
• Application lag: between end of
development and beginning of use. Often
short.
• The stage when R&D is used in
production
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Inclusion of lengths of project and
application lag needed
• Major parts of R&D is own account
production, and for practical reasons
expenditure on R&D will be classified as
capital formation from the start of R&D
projects.
• Length of R&D project and application lag
also needed for enterprises that sell R&D
produced. Before sales R&D will be work
in progress.
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The feasibility of obtaining
data
• All respondents interviewed were able to
give estimates of average length of service
lives of R&D.
• When more than one enterprise in a certain
industry responded - similar length.
• But some explained that length has
changed in recent years, and become
shorter. Implies that data need to be
collected every few years.
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Types of R&D
• In many cases: more than one kind of
R&D, each with special length of service
life.
• Examples: Semiconductor industry applications for communication and for
transportation. Pharmaceutical industry new medicine and generic medicine.
• Means that important to collect data on the
composition of R&D.
• It is possible to obtain composition, mostly
separate units.
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Service life and duration of R&D
projects
• Length of service lives appears to be
closely connected to the cost and
duration of R&D projects. If R&D project
has a very long duration or is
expensive, then service lives are usually
longer.
• Data on the duration of R&D projects
were easy to obtain – the enterprises
had structured working programmes for
R&D projects.
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Successful and unsuccessful R&D
• The fact that part of R&D is
unsuccessful was taken into account
in work programmes.
• Usually a time schedule for decisions
to abandon unsuccessful projects.
• Respondents were aware of the rate
of success.
• Revenues on successful R&D usually
cover all R&D, also unsuccessful
attempts
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Length of application lags
• The length of the application lags often
quite short.
• Enterprises work simultaneously on R&D
and on designs for use of R&D in
production, so
implementation almost
immediately.
• Enterprises have tight work programmes
for a number of years ahead, and are well
able to respond to questions about
application periods
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Reason for ceasing to use R&D
• Reason given by the respondents:
use of new R&D, which replaced and
improved upon the former R&D.
• In most cases the old R&D asset is
entirely
abandoned,
when
replacement introduced, but in some
cases it may be used in production
on a minor scale to reap some
remaining benefits from it.
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Conclusion
• Seems possible to obtain relatively firm and
consistent responses on length of service lives.
• Similar lengths for similar types of R&D indicate
that collection of expert opinions may be
sufficient.
• Lengths could even be identical at a global
level, so that international figures could be
used.
• Important that additional countries collect
similar information.
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