Gross and Net Capital, and the Form of the Survival Function: Theory and Some Norwegian Evidence

In this paper we discuss the empirical measurement of capital stocks derived from data on gross investment. Two capital concepts are involved: gross capital‐representing the capital's capacity dimension‐and net capital–representing its wealth dimension. A brief summary of their components is presented. The data base consists of long series of Norwegian national accounts data for gross investment at a disaggregated level of sector classification and for 1–3 capital categories within each sector. Survival functions, representing the process of retirement and decline in efficiency of capital units over time, with different curvature (concave, convex) and non‐zero interest rates for the discounting of future capital service flows are considered. The effects of these parameters on the calculated gross and net capital stocks in the years 1956–82 as well as on the implied replacement and depreciation rates and rates of return are discussed.