Planning Report 01-1

Economic Impact Assessment

of the NIST's Josephson Volt

Standard Program

Prepared by:

TASC, Inc.

for

National Institute of

Standards & Technology

Program Office

Strategic Planning and

Economic Analysis Group

July 2001

U.S Department of Commerce

Technology Administration
Economic Impact Assessment of the 

NIST’s Josephson Volt Standard Program

July 2001

Prepared for:

The National Institute of Standards and Technology

Program Office

Strategic Planning and Economic Analysis Group

Prepared under:

Contract No. 50SBNB7C1122

Task Order No. 5

Prepared by:

David P. Leech

 Approved by:

Christopher Waychoff

Gary Payne 

TASC, Inc.

1101 Wilson Boulevard

Suite 1600

Arlington, VA 22209
ACKNOWLEDGEMENTS

We wish to acknowledge the contribution of Charles G. Masi to an early version of this report. In 

addition, Michael Marx (TASC) made incisive recommendations for improving the analysis and 

presentation of the report. NIST technical staff, especially Michael Kelley and Clark Hamilton, 

provided extensive support in terms of patiently explaining voltage calibration processes and a complex 

program history. Gregory Tassey (NIST) provided critical insights that helped conceptualize the 

economic impacts of the program
iii

TABLE OF CONTENTS

LIST OF FIGURES ..........................................................................................................................................................................V

LIST OF TABLES ...........................................................................................................................................................................V

EXECUTIVE SUMMARY................................................................................................................................................................ 1

1. BACKGROUND.................................................................................................................................................................... 1

1.1 ECONOMIC IMPORTANCE OF ELECTRICITY.....................................................................................................1

1.2 VOLTAGE.....................................................................................................................................................................2

1.3 CALIBRATION.............................................................................................................................................................2

1.4 TRACEABILITY...........................................................................................................................................................4

1.5 HISTORICAL ROLE OF NIST IN VOLTAGE MEASUREMENT AND CALIBRATION..................................7

1.5.1 Weston Standard Era........................................................................................................................................8

1.5.2 Early JVS Era ......................................................................................................................................................8

1.5.3 10 Volt Josephson Standard Era .....................................................................................................................9

2. ECONOMIC ANALYSIS FRAMEWORK......................................................................................................................11

2.1 NIST OUTPUTS AND THEIR ECONOMIC IMPLICATIONS.............................................................................11

2.1.1 Primary Calibration Services & Inter-laboratory Comparisons................................................................11

2.1.2 Transfer of JVS System Technology............................................................................................................12

2.2 AFFECTED ORGANIZATIONS...............................................................................................................................13

2.2.1 Government & Industry Metrology Laboratories......................................................................................13

2.2.2 Industry Conduct............................................................................................................................................18

2.3 MARKET BARRIERS AND FRICTIONS................................................................................................................19

2.4 ASSESSMENT FRAMEWORK AND APPROACH................................................................................................21

2.4.1 Hypothesized Outcomes................................................................................................................................21

2.4.2 Comparison Scenario ......................................................................................................................................22

2.4.3 Impact Estimation Timeframe (1987-2000)....................................................................................................23

3. SURVEY FINDINGS ...........................................................................................................................................................24

3.1 SURVEY POPULATION AND SAMPLE.................................................................................................................24

3.2 QUANTITATIVE FINDINGS....................................................................................................................................25

3.3 QUALITATIVE FINDINGS.......................................................................................................................................26

4. QUANTITATIVE ANALYSIS ...........................................................................................................................................28

4.1 BENEFITS....................................................................................................................................................................28
iv

4.2 NIST EXPENDITURES & JVS OWNER “PULL COSTS”......................................................................................29

4.3 MEASURES OF ECONOMIC IMPACT...................................................................................................................30

APPENDIX A — VOLTAGE CALIBRATION AT NIST........................................................................................................33

APPENDIX B — ELECTRICAL METROLOGY IN PRACTICE..........................................................................................35

APPENDIX C — ECONOMIC IMPACT METRICS ...............................................................................................................38
v

LIST OF FIGURES

Figure 1. The International Traceability Hierarchy..............................................................................5

Figure 2. Development of NIST Voltage Measurement and Calibration Technology...........................7

Figure 3. Hypres Inc.'s Josephson Volt System...............................................................................15

Figure 4. Supply Chain for Voltage Measurement Technology.........................................................15

LIST OF TABLES

Table 1. Estimates of Economic Impact ...........................................................................................2

Table 2. JVS Owners.....................................................................................................................14

Table 3. User Market Shares for Voltage Measurement Instruments................................................17

Table 4. Working Hypotheses: Barriers, Outputs, and Benefits........................................................22

Table 5. Survey Respondents and Year of JVS Implementation.......................................................24

Table 6. JVS Owner Benefits.........................................................................................................29

Table 7. NIST Expenditures & Owner “Pull Costs” (Nominal $).....................................................30

Table 8. Constant 2000 Dollar Benefits and Costs (1987 – 1999)*.................................................31

Table 9. Estimates of Economic Impact .........................................................................................31
ES-1

EXECUTIVE SUMMARY

The National Institute of Science and Technology (NIST) has been at the pinnacle of the 

nation’s electrical measurement system since NIST’s founding (as the National Bureau of Standards) in 

1901. NIST maintains research and technology expertise that assures the nation’s commitment to the 

highest international standards of measurement. NIST often leads in the development and advocacy of 

such measurement standards. To accomplish this mission, NIST must make investments in the 

development, maintenance, and diffusion of what economists call infratechnologies, which allow 

comparable measurements among industries, between industries and university research centers, and 

among nations.

This economic impact assessment focuses on a program that is in some ways represents a major 

change in standards worldwide— the shift to intrinsic standards. Unlike traditional measurement 

standards that rely on artifacts or experiments to produce the basis for measurement, intrinsic standards 

are based on constants of nature, inherent properties that are invariant and independent of the 

environment. Intrinsic standards hold the promise of shortening the traceability pathway from the end 

product back to the national laboratory. Examples of quantities supported by intrinsic standards include 

time and frequency, resistance, and length.

An example of this trend toward intrinsic standards is voltage measurement. When NIST was 

founded in 1901 the competition for voltage measurement technology was between two types of “wet 

cell” batteries — the Clark cell and the Weston cell. In 1905, the U.S. adopted a new representation of 

the standard volt based on Weston cells located at NIST. By the late 1960s, university researchers 

were beginning to understand the electrical properties of Josephson junctions, made of superconductor 

material. In cooperation with NIST (NBS), special instrumentation was built to verify the accuracy of 

the university's Josephson voltage standards. It was soon recognized throughout the world that a 

precision intrinsic voltage standard was possible. 

In 1972, the U.S. was the first nation to adopt a representation of the volt based on the 

electrical properties of a Josephson junction maintained at NIST. By the mid-1980s, the national 

standards laboratories of most major industrialized countries used the Josephson effect to define their 

unit of voltage. NIST's researchers envisioned a relatively low cost and portable Josephson Volt 

Standard (JVS) system infratechnology to improve the way that the metrology community conducts 

routine calibration. 
ES-2

By the late 1980s, NIST began to transfer its JVS technology to sophisticated manufacturing or 

service production environments, such as electronic measurement instrument manufacturers and 

aerospace industry metrology laboratories. By the time this economic impact assessment was initiated, 

NIST had transferred it JVS technology to more than 40 government and private sector organizations 

worldwide, including more than 20 in the North America alone. 

It was anticipated that the transfer of NIST’s technology would result in four types of economic 

impacts: calibration process savings, in-service failure cost avoidance, product development savings, 

and profits from sales of products dependent on NIST JVS system technology. While surveys of JVS 

system users indicate that process and cost-avoidance savings are significant, by far the greatest 

measurable impact has been on enabling leading instrument manufacturers to come to market sooner 

than their international rivals, with the most sophisticated new measurement technology, and to profit 

accordingly. This is reflected in the measures of economic impact presented in the table below. 

Table 1. Estimates of Economic Impact 

Performance Metric Estimate

Net Present Value in 1987 $18,700,000

Net Present Value in 2000 $45,100,000

Real Social Rate of Return 877%

Benefit-to-Cost Ratio 5
1

1. BACKGROUND

1.1 ECONOMIC IMPORTANCE OF ELECTRICITY

To a large extent, electricity defines modern technology-based civilization. For the entire 20th 

century, electrical power and the devices it supports have been a driving force for the U.S. economy. 

The scale of electrical production and its widespread use in the automotive, aircraft, chemical, machine 

tool, and, most recently, the telecommunication and computer industries has led economic historians to 

refer to the 20th century as “the age of electricity.”1 In just over 100 years, electricity has radically 

transformed and expanded our energy use. 

Electricity is clean, flexible, controllable, safe, effortless, and available 

instantly. In homes, it runs everything from toothbrushes and televisions to 

heating and cooling systems. Outdoors, electricity guides traffic, aircraft, 

and ships, and lights up the night. In business and industry, electricity 

enables virtually instantaneous global communication and powers diverse 

devices that include trains, auto plant assembly lines, restaurant 

refrigerators, and automatic pin-setting machines at the local bowling 

alley.2

The penetration of electricity into our economy and way of life is reflected in the nearly unbroken 50-

year pattern of increasing electric power sales.3 From 1949 to 1997, while the population of the United 

States grew by 79 percent, the total amount of electricity sold grew by more than 1,100 percent. Percapita average consumption of electricity was almost seven times higher in 1997 than in 1949.

 

1

S. Ratner, J. Saltow, and R. Syllva, The Evolution of the American Economy, Basic Books, 1979.

2

Energy in the United States: A Brief History and Current Trends, US Energy Information Administrations, 

http://www.eia.doe.gov/emeu/aer/eh/eh.html#TE, May 1999.

3

Two years—1974 and 1982—are the exceptions to the long-term trend. Energy in the United States: A Brief 

History and Current Trends, U.S. Energy Information Administration, April 1999.
2

1.2 VOLTAGE

The measurement of electrical parameters is fundamental to the producers of electrical power as 

well as to the designers, producers and users of devices that employ electricity. All electrical systems 

are designed to produce information or do work. The services they provide and the proper functioning 

of their devices require accurate measurement of voltage (V), current (I), and resistance (R). Ohm’s 

Law (V=IR) describes the relationship among them.

Also called “potential energy,” “potential difference,” voltage is an electrical property that is 

basic to the structure of matter. Voltage in an electrical system is analogous to water pressure in a faucet 

or a hose.4

Accurate measurement of voltage is extremely important in a wide range of instrumentation. 

Specifically, voltage measurement is an important parameter for the following four broad classes of 

instruments:

• Voltage measuring equipment

• Process control instruments

• Electrical integrating instruments 

• Analytical and scientific instruments.5

1.3 CALIBRATION

Every device that used to measure electrical energy must be calibrated to assure its accuracy. 

Such calibration assures that the uncertainty in measurement readings is within specified limits.6 While the 

influence of metrology and calibration is pervasive, the average person knows little about the 

infrastructure and practice of measurement generally, and less still about the infrastructure and practice 

of electrical measurement in particular. Thus, little public attention is paid to these important 

 

4

W. E. Hafford and E. W. McWhorter, Understanding Solid State Electronics, Howard W. Sams & Co., 1984. 

5

 These correspond with the following Standard Industrial Product Codes: 38252, 38230, 38251, and 38260.

6

 “Accuracy” is the difference between the measurement result (datum) and the actual value of the physical quantity 

being measured. “Precision” is the smallest difference a measuring instrument can report, and is a function of the 

instrument used to make the measurement. Non-metrologists usually judge the quality of a measurement in terms of 

accuracy. Metrologists, on the other hand, prefer to use the term “measurement uncertainty,” which has the 

advantage of being defined rigorously.
3

measurement issues because they are regulated and performed behind the scenes in accordance with 

laws and contracts.7

Calibration is performed by, or in conjunction with, metrology laboratories according to daily, 

weekly, monthly and annual routines. The main business of a metrology laboratory is the calibration of 

test equipment, as well as the development and maintenance of processes for conveying accurate 

calibrations to all measurement and test equipment in its purview. In a general sense, calibration is a set 

of operations performed in accordance with specific documented procedures for comparing 

measurements made by one instrument to those made by a more accurate instrument or standard. The 

purpose of calibration is to detect and report errors in the instrument tested, and to eliminate these 

errors by making adjustments. 

In a manufacturing or service production environment, routine tests of production processes and 

products involve a wide variety of test equipment that must be calibrated to assure the quality of these 

products and processes. The costs of the facilities, equipment, training, and operation of metrology labs 

are returned in:

• More reliable instruments

• Better control of manufacturing processes

• Fewer manufactured items that must be diverted for re-test or re-work

• Greater sales of products and services to customers satisfied with an 

organization's quality practices.

Perfect products, perfect manufacturing equipment, and perfect test equipment are not possible. 

What is possible, and what manufacturers seek to achieve, are characterizations of quality, most 

generally in terms of accuracy (uncertainty) and precision. The job of industrial metrologists, and the 

mission of NIST in supporting the metrology community, is to assure the best possible calibration 

procedures for maintaining or improving product and service quality.8 Ultimately, the struggle for 

product and service quality assures the competitive position of U.S. producers in domestic and 

 

7

For example, we take for granted that two clocks in different locations read the same. In fact, the accuracy of our 

watches is often measured against a standard source by “calling time.” We assume that a pound of hamburger is 

roughly the same regardless of where it is purchased, and while we may be aware that grocers' scales are 

“inspected,” we take it for granted that the scale's accuracy is maintained regularly. We also assume that the 

temperature on a new oven is accurate, so that it will cook food in roughly the time indicated in a cookbook.

8

Metrology is the science and practice of measurement, including the design, conduct, or analysis of a test and its 

results.
4

international markets. The network of laboratories, organizations, people, and documents that provide 

assurances of the quality of electrical measurement is known collectively as the "national measurement 

system for electricity."9

1.4 TRACEABILITY

Traceability is a property of the calibration process that allows a quality control auditor to trace 

basic calibration values back to an appropriate fundamental standard of measurement. Hence, standards 

traceability is analogous to a pedigree.10 Ideally, this pedigree is international. That is, ideally, a 

calibration value is agreed to by international consensus so that scientific and industrial transactions 

between nations can be made with confidence that the basis for measurement is consistent.

As shown in Figure 1, the international traceability hierarchy begins with international consensus 

under the Treaty of the Meter. The volt, along with other key units of electrical measurement, is defined

by a consensus of the International Committee for Weights and Measures (CIPM).11 The CIPM 

establishes, maintains, and disseminates the International System of Units (SI) through its deliberations. 

The “meter,” for example, is a SI unit, as is the volt. SI definitions are stated without uncertainties.12 To 

make use of these definitions, however, requires a physical artifact or an experimental apparatus to 

generate a useable realization of the defined unit. Such realizations are generally carried out in 

National Metrology Institutes, such as the National Institute of Standards and Technology and similar 

agencies around the world

 

9

N. Belecki, et al, The National Measurement System for Electricity, (NBSIR 75-935), National Bureau of Standards, 

September 1978

10

 The International Vocabulary of Basic and General Terms in Metrology (1993) defines traceability as, “The 

property of the result of a measurement or a value of a standard whereby it can be related to stated references, 

usually national or international standards, through an unbroken chain of comparisons, all having stated 

uncertainties.” Quoted in NIST Calibration Services Users Guide, 1998 (SP 250), NIST, USGPO, 1998, pg. 3.

11

The CIPM oversees the activities required under the Treaty of the Meter, to which most technology advanced 

countries are signatories.

12

For example, the base unit of electricity, the ampere, is defined as follows: “that constant current which, if 

maintained in two straight parallel conductors of negligible cross-section, and placed 1 meter apart in a vacuum, 

would produce a force equal to 2 x 10-7 newtons per meter of length between these conductors.” 
5

International 

Committee

 for 

Weights and Measures

• SI Definitions

International

Measurement 

Organization

National-level

Measurement 

Organization

NIST

• National Realizations 

of SI Definitions

• National Representation 

of the Volt

Corporate Metrology Laboratory

• Golden Standard

Local Calibration Laboratory

• Transfer Standard

• Ratio Standard

• Working Standard

Production Environment

• Workload Instrument

Industrial

Measurement 

Organizations

Treaty of

 the Meter

Figure 1. The International Traceability Hierarchy13

National traceability, in turn, involves a functional hierarchy of measurement instruments or 

artifacts at various "distances" from the primary standard of measurement. In general, accuracy and 

demands for technical expertise diminish, and the number of customers served increases, as one moves 

down through the measurement hierarchy.14

At the top of the national traceability hierarchy is a primary standard: A primary standard is 

defined and maintained by some authority as the means for calibrating secondary standards. Within a 

national context, NIST is the ultimate authority or "owner" of the national representation of the primary 

voltage standard. Within a corporate context, a central metrology laboratory typically owns the primary 

 

13

 This figure is based on “Traceability Diagram for Direct Voltage,” in, Fluke, Calibration: Philosophy In Practice, 

1994, p. 6-7 (hereafter, Fluke, 1994); and “Typical Corporate Support Structure”, in N. Belecki, et al, The National 

Measurement System for Electricity, (NBSIR 75-935), National Bureau of Standards, September 1978, p. 24.

14

 Fluke, 1994, p. 4-7.
6

standard (a secondary standard from a national perspective), which is often referred to as a "golden 

standard" for internal measurement purposes.15

In order to transfer the accuracy base of a national primary standard to industrial organizations, 

a transfer standard is employed. A transfer standard is used to compare a measurement process, 

system, or device at one location or functional level with another measurement process, system or 

device at another location or level. NIST utilizes transfer standards in its Measurement Assurance 

Program (MAP). Under this program, solid state voltage output devices are precisely calibrated at 

NIST. These calibrated artifacts are then sent to industry where their output voltages are measured. The 

measurement results and the transfer standards are then returned to NIST and measured again for 

comparative analysis.

Within a corporate setting, transfer standards, which are measured against the corporation’s 

golden standards, are transferred to local (perhaps divisional) quality control organizations. These 

transfer standards are then re-calibrated against the organization’s golden standard at pre-determined 

intervals according to an organization's quality assurance procedures.

Ratio standards are used to obtain other values of a unit from a traceable intrinsic or artifact 

standard of measurement. For example, if the national representation of the volt is an output of 10 volts, 

and an application requires the measurement of 5 volts or 50 volts, then the standard voltage outputs 

must be scaled accurately. The most common scaling technique is "ratioing" the proportion of one level 

of a quantity to another level of the same quantity. There are no national ratio standards.16 

Working standards are used in routine calibration and comparison procedures in the laboratory 

and maintained in comparison to a golden standard. Typically, this is a solid state dc voltage output 

device that is less accurate and reliable than the golden standard to which it is compared for calibration. 

Finally, workload calibration instruments are calibrated routinely for use in a “production 

environment” (i.e., outside the confines of the metrology or calibration laboratory). 

Establishing NIST traceability for a production measurement implies a documentation trail 

leading from a workload instrument that has been calibrated through a series of working standards and 

 

15

 As explained further in section 2.1.3, the situation in the case of voltage standards is somewhat more complex. Due 

to technology transfer efforts by NIST, several industry-level organizations own primary standards that are as 

accurate as the national primary standard. 

16

 The instruments used to derive ratio standards in metrology labs are known as “dividers.” Fluke, 1994, p. 9-3.
7

transfer standards and ultimately to a primary standard of measurement maintained by NIST. The 

pinnacle of this system is the Electricity Division of NIST's national measurement laboratory in 

Gaithersburg, Maryland. 

1.5 HISTORICAL ROLE OF NIST IN VOLTAGE MEASUREMENT AND 

CALIBRATION

NIST's involvement with the development and maintenance of the standard volt can be 

described in three eras: the Weston Standard era; the Early JVS era; and the 10 volt JVS era. This 

focus of this economic impact assessment is the last of the three eras. A brief review of the preceding 

history of voltage measurement technology provides context. In this regard, Figure 1 depicts some of 

the more important technical and legal developments in the history of NIST’s involvement with voltage 

measurement.

Weston Era

Early JVS Era (2-junction)

1 V Josephson array R&D

Josephson array technology transfer

• 1972 - US adopts

Josephson-based volt

representation

Voltage Measurement

Technology

Development and

Implementation

Calibration Services

Technology

Weston battery technology

1 V Josephson array technology

10V JVS technology

1905 1972 1977 1982 1987 1992 1997

1972 1977 1982 1987 1992 1997

• By mid-1980s most national standards labs

used the Josephson effect to define 

their unit of voltage

• In 1982, nine

countries (w/US)

used 1- or 2-junction

arrays

• In 1987 US begins maintaining volt

with 1V array system

1905

Millivolt Josephson implementation

• In 1970 NIST employs

2-junction to control 

cell drift

• Hamilton paper (1989)

 announced operational

10V array

10V

• Transfer to RMC (~1987) &

Hypres (1992-93)

Josephson array R&D

• Design of 10V

Josephson array begins

(~1984)

Figure 2. Development of NIST Voltage Measurement and Calibration Technology
8

1.5.1 Weston Standard Era

NIST was established as the National Bureau of Standards (NBS) in 1901 when voltage 

measurement technology was undergoing a change in battery technology—from the Clark cell to the 

Weston cell.17 In1905, the U.S. adopted a new representation of the standard volt based on values 

derived from a bank of Weston cells located at NIST. This Weston Standard era for maintaining the 

national representation of the volt lasted until 1972.

1.5.2 Early JVS Era 

The Early JVS Era began with collaborative efforts by researchers at the University of 

Pennsylvania and NIST to measure precisely the relationship between voltage (V) and frequency (F) in 

recently discovered superconductor devices called Josephson junctions. In 1969, University of 

Pennsylvania researchers published an important paper concerning the electrical properties of solid 

state, cryogenic Josephson junctions. Their research resulted in the first high-precision measurements of 

the Josephson constant (2e/h), and necessitated the construction of special instrumentation and the 

initiation of a special effort, both at NBS and the University of Pennsylvania, to verify the accuracy of 

the University's voltage standards. With this measurement in hand, it was recognized throughout the 

world that a precision intrinsic voltage standard was possible.18 One of these researchers went to NIST 

to pursue this possibility.19

At that time, the U.S. representation of the volt was maintained by a series of specialized 

batteries called Weston cells. As a result of the research conducted in this era, NIST overcame certain 

inherent difficulties in using Weston cells to maintain the value of the volt, especially their variation with 

time (i.e., drift), severe dependence upon temperature, and occasional unpredictable abrupt voltage 

changes.20 In 1972, the U.S. adopted a representation of the volt based on the electrical properties of a 

superconductor component called a Josephson junction device. It was designed and implemented by 

metrologists at NIST.

 

17

 For a detailed discussion of the technical pros and cons of these two battery technologies, see, W.J. Hamer, 

“Standard Cells: Their Construction, Maintenance, and Characteristics,” NBS Monograph No. 84, January 15, 1965.

18

 B. Field, et al, Metrologia, “Volt Maintenance at NBS via 2e/h: A New Definition of the NBS Volt,” Vol. 9, pp. 155-

166, 1973.

19

 S. Kaplan, “The Josephson Primary Voltage Standard: A New Voltage Calibration System With 5 ppm Uncertainty,” 

CAL LAB, March-April, 1995.

20

 B. Field, et al, “Volt Maintenance at NBS via 2e/h: A New Definition of the NBS Volt,” Metrologia, Vol. 9, pp. 155-

166, 1973; and N. Belecki, et al, “Guidelines for Implementation the New Representation of the Volt and Ohm 

Effective January 1. 1990,” NIST Technical Note 1263, June 1989.
9

At the international level, the consistency of U.S. voltage standards with those of other countries 

continued to require the inter-comparison of Weston cells. These were sent, every three years, to the 

Bureau International des poids et mesures (BIPM) in Paris, France.21 However, the uncertainties 

attributed to such cell transfers were an order of magnitude worse than those attained when standard 

cells were disciplined by Josephson arrays. Thus, international agreement on the value of the volt could 

be improved by an order of magnitude by developing a JVS standard that could be transported for 

intercomparison with JVS standards sent from other countries. Such a JVS would similarly improve 

agreement between NBS-maintained primary standards and primary standards maintained at other 

domestic metrology laboratories.

By the mid-1980s, the national standards laboratories of most major industrialized countries 

used the Josephson effect to define their unit of voltage and maintain it constant in time.22, 23

1.5.3 10 Volt Josephson Standard Era

Ten years of NIST research culminated in 1987 with the implementation of a new one- volt 

Josephson array system to maintain the U.S. legal volt.24 Since 1987, NIST had supported U.S. 

industry's transition to a new internationally agreed upon value for the volt, and continued to develop its 

voltage calibration technology and transfer it to industry. 

Meanwhile, NIST's Josephson Volt standard researchers envisioned a relatively low cost and 

portable technology to improve the way that the metrology community conducts routine calibration.25 

This vision resulted in continued NIST research that came to fruition in the following results:

 

21

 The BIPM carries out technical work for the CIPM depicted in the international segment of Figure 1.

22

 In 1982, the following countries utilized single junction and two-junction Josephson arrays to represent the volt: 

US, UK, Australia, Italy, Russia, France, West Germany, Canada, Japan. See, A. Barone and G. Paterno, Physics 

and Application of the Josephson Effect, John Wiley & Sons, 1982, pp.350-351.

23

 Unfortunately, three countries used values of 2e/h that differed from the values specified by the international 

standards body and, therefore, used by the majority of nations. This inconsistency resulted in national volt 

representations that were both larger than the international standard, for France and Russia, and smaller than the 

international standard for the United States. 

24

 C. Hamilton, et al, “The NBS Array Voltage Standard,” IEEE Transactions on Instrumentation and Measurement, 

Vol. IM-36, No. 2, June 1987. R. Steiner and R. Astalos, “Improvements for Automating Voltage Calibrations Using 

a 10-V Josephson Array,” IEEE Transactions on Instrumentation and Measurement, Vol. 40, No. 2, April 1991.

25

 R.F. Dziuba, B. Field, and T. Finnegan, “Cryogenic Voltage Comparator System for 2e/h Measurements,” IEEE 

Transactions on Instrumentation and Measurement, Vol. IM-23, No. 4, December 1974; and B. Field and V. 

Hesterman, “Laboratory Voltage Standard Based in 2e/h,” IEEE Transactions on Instrumentation and 

Measurement, Vol. IM-25, No. 4 December 1976.
10

• Development and implementation of a 10 volt Josephson array system at 

NIST, which culminated in 199026

• NIST's effort to transfer 10 volt Josephson array system technology to 

industry, beginning in the late 1980s and continuing today.

NIST is now in the third era of developing and maintaining the volt, the "Josephson 10 Volt 

Standard Era." This era began with NIST's decision to maintain the standard value of the volt via the 10 

volt Josephson array.27 which displaced the one volt Josephson system technology as the national 

standard. Since then, NIST has provided a steady stream of technological and organizational 

improvements leading to:

• Increased electrical measurement accuracy

• Reduced calibration cost throughout the national measurement system for 

electricity

• Diffusion of advanced measurement technology to sophisticated 

government and industrial users, which has enabled the development and 

sale of electrical measurement instrumentation worldwide.

For reasons that will be explained in the following chapter, NIST’s efforts to transfer its 10 volt 

JVS technology to government and industrial users will be the main focus of this economic impact 

analysis. 

 

26

 B. Taylor, “History of the Present Value of 2e/h Commonly Used for Defining National Units of Voltage and 

Possible Changes in National Units of Voltage and Resistance,” IEEE Transactions on Instrumentation and 

Measurement, IM-36, No. 2, June 1987; and N. Belecki, et al, “Guidelines for Implementation the New 

Representation of the Volt and Ohm Effective January 1. 1990,” NIST Technical Note 1263, June 1989.

27

 NIST maintains the representation of the SI volt through both 1 volt and a 10 volt Josephson voltage standard 

systems. See Appendix A for further explanation. 
11

2. ECONOMIC ANALYSIS FRAMEWORK

NIST’s role in the development and transfer of Josephson array technology and NIST’s 

support to industry in providing both technical guidance and calibration services was discussed in 

Chapter 1. Chapter 2 establishes the framework for analyzing the economic impact of NIST’s 

contributions.

2.1 NIST OUTPUTS AND THEIR ECONOMIC IMPLICATIONS

The historical overview in Section 1.5 shows that many outputs have been generated from 

NIST's Josephson Volt Standard program over a long period of time. The focus of this impact 

assessment is confined to just one facet of NIST’s overall program. Our focus is confined to NIST 

efforts to transfer its 10 volt JVS system technology to metrology laboratories in the private and public 

sector. NIST expenditures that occurred prior to the development of the 10 volt JVS system will be 

considered sunk costs.28

Before describing NIST’s efforts to develop and transfer its 10 volt JVS technology, it may be 

useful to described some NIST activities that are related to the 10 volt JVS technology but are not the 

focus of this economic analysis.

2.1.1 Primary Calibration Services & Inter-laboratory Comparisons

NIST's Gaithersburg location provides primary calibration services to about 50 customer 

organizations with most demanding requirements for accuracy. Many of these organizations, in turn, 

provide calibration services on a vendor basis. The availability of the 10 volt and one volt standards, 

which are typical voltage levels used throughout industry, reduce measurement errors that would 

otherwise occur in the process of scaling up voltage measurement from millivolt output levels.

 

28

 The investment in any technical innovation starts with a preexisting stock of knowledge, and the attainment of that 

knowledge is a sunk cost.
12

NIST’s calibration laboratory is a co-developer as well as a user of the 10 volt JVS technology. 

However, the calibration laboratory does not use its 10 volt JVS system for routine voltage 

maintenance.29 (See Appendix A.) Still, from 1988 to 1991, NIST’s calibration laboratory incorporated 

the 10 volt JVS into its own operation in preparation for inter-laboratory comparisons (ILCs) that 

would be important to the acceptance and traceability of the JVS by other government and industry 

laboratories. 

The ILCs were launched to assure that the increasing number of volt representations were 

performing consistently. ILCs provide participants with an increased degree of confidence that these 

complex systems are behaving properly and that they are traceable to NIST's representation. ILCs 

have been very successful in confirming that the accuracy of the transferred “primary” Josephson volt 

system standard is being maintained.30

2.1.2 Transfer of JVS System Technology 

Beginning in the late 1980s, NIST began to transfer its one-volt and 10 volt Josephson array 

technology to sophisticated industry and government users. These users, with extensive consulting 

support from NIST, integrated NIST-produced arrays and NIST-developed software, with other 

equipment into Josephson volt systems. Some users acquired both the one-volt Josephson array 

technology and the 10 volt technology. The 10 volt technology was ultimately more useful to industry 

because it could be applied to more generally required measurements, such as calibrating solid state 

reference standards at multiple output levels and calibrating voltage measurement instruments over a 

wide range of voltages.

Recall from the discussion of the traceability hierarchy in Section 1.4 that the nation’s “primary” 

standard is, by traditional definition, maintained by NIST. With transfer of JVS technology to corporate 

metrology labs, these organizations had direct access to, effectively, primary standards. According to an 

industry “rule of thumb,” shortening the calibration chain should have a significant effect on improving 

product and process accuracy.31 These systems were also acquired to support develop of new 

instruments. 

 

29

 For this reason, the benefits of the 10 volt JVS system to calibration service providers — through NIST’s 

calibration laboratory — was not addressed in this impact assessment.

30

 NIST and the National Conference of Standards Laboratories (NCS) have organized 5 ILCs (in 1991, 1993, 1995, 

1997, and 1999). 

31

 According to this rule of thumb, accuracy declines by a factor of four each step from the primary standard. Thus, 

the transfer standard’s uncertainty is four times worse than that of the primary standard. An instrument calibrated 
13

 U.S. Government metrology organizations were among the first to acquire JVS technology, and 

the first private sector firms to acquire NIST's technology were Lockheed (Missiles and Space 

Division), Hewlett-Packard, and Fluke. By 1995 Hypres Inc., Lockheed Martin (Astronautics 

Division), and Keithley Instruments had acquired NIST's JVS technology and participated in the 

national ILCs.

NIST transferred the technology for an integrated Josephson voltage system to Hypres Inc. in 

1992-93.32 In 1994 Hypres began to market 10 volt Josephson array chip technology, and in 1996 

Josephson array system technology became available commercially.33 Hypres has sold five such 

systems, including one to Wiley Laboratories and one to the Boeing Company. Today, at least 16 

Josephson array systems are in operation in the United States:

• Six at NIST34

• Nine in other U.S. government laboratories (DoE National Laboratories 

(2), U.S. Air Force Primary Standards Lab, NASA (3), U.S. Army, 

Naval Aviation Depot, Mid-Atlantic Regional Calibration Center) 

• Seven in commercial standards laboratories (Boeing, Fluke, Agilent 

(formerly Hewlett-Packard), Hypres, Keithley, and Lockheed Corp. (2)).

35

2.2 AFFECTED ORGANIZATIONS

2.2.1 Government & Industry Metrology Laboratories 

The organizations to which 10 volt JVS systems have been transferred are typically the 

metrology laboratories of large producers or users of sophisticated electronic equipment. In the case of 

government-owned JVS systems, organizations like the U.S. Army’s Redstone Arsenal, or the 

Department of Energy’s weapons development laboratories, represent the capstone of voltage standard 

 

by reference to the transfer standard has sixteen times (4 x 4) the uncertainty of the primary standard, and so forth.

While we are not asserting that the rule of thumb is empirically sound, it suggests that substantial benefits should 

accrue to owners of JVS technology in terms of the costs of maintaining a high level of accuracy within their 

organizations.

32

 Following IBM's decision to abandon its substantial Josephson junction research in the mid-1980s, Hypres Inc. 

was founded by a former IBM scientist.

33

 Personal communication with NIST, December 1998.

34

 The six systems referred to are conventional and compact 10 volt JVS systems. NIST also maintains two 

programmable one volt JVS systems. Personal communication with NIST, November 29, 1999.

35

 There are approximately as many JVS systems in operation in other nations.
14

traceability across large organizations with complex electronic maintenance and quality control systems. 

In addition to the needs of their own organizations, the Army’s Redstone Arsenal, for example, is 

required by foreign governments to whom it sells sophisticated weapon systems to maintain the highest 

international standards of quality control.36 Table 2 identifies owners of the NIST-developed 10 volt 

JVS systems as of 2000.

Table 2. JVS Owners

Commercial Government

Agilent DoE (Sandia National Laboratory)

Boeing Metrology Laboratory NASA (Ames Research Center)

Fluke Corp. NASA (Jet Propulsion Laboratory)

Hypres Inc. NASA (Kennedy Space Center)

Keithley Instruments U.S. Air Force (Primary Standards Laboratory)

Lockheed Martin (Astronautics Div.) U.S. Army (Redstone Arsenal)

Lockheed Martin (Missiles & Space Div.) U.S. Navy (Primary Standards Laboratory)

Unisys Government Systems U.S. Navy (Mid-Atlantic Regional Calibration Center)

 Similarly, among commercial owners of 10 volt JVS systems, an organization’s central 

metrology laboratory has typically been responsible for the transfer and use of the JVS. Like 

government owners, commercial owners use the systems to develop new product features and to 

maintain high standards of measurement quality control. The commercial owners of 10 volt JVS systems 

consists of manufacturers of voltage source and voltage measurement instruments, including the sole 

commercial manufacturer of 10 volt Josephson voltage system technology, Hypres Inc. In 1992, NIST 

began to transfer the technology for the 10 volt Josephson array system to Hypres, Inc., which began 

commercial sales of Josephson array systems in 1996.37 The Hypres Josephson volt system is pictured 

in Figure 3. 

 

36

 Many governments insist on doing business ISO 9000 registered suppliers. In the case of the U.S. Army, Redstone 

Arsenal is responsible for the Army -wide quality system.

37

 Personal communication with Dr. Yi-hua Tang (NIST), December 1998. Actually NIST’s initial technology transfer 

efforts began in late 1987 with a now-defunct company, RMC Inc.
15

Figure 3. Hypres Inc.'s Josephson Volt System

The supply chain for electrical measurement technology of which 10 volt JVS users are a part is 

shown in Figure 4.

IntraOrganizational

QC 

Systems - Government

- Industry

Metrology and Calibration 

Laboratories

Voltage Calibration Services

Voltage Measurement 

Instrumentation

Voltage 

Source

 Instrumentation

Production Quality

Control Systems Equipment Maintenance

~ 50 HighAccuracy Calibration 

Service Provider

s

Voltage 

Source Manufacturer

s

DMM

Manufacturer

s- Agilent

- Keithley

- Fluke

- Wavetek

- Tektronics

- LeCroy

- Hypres

- Fluke

- Guildline

- Wavetek

Figure 4. Supply Chain for Voltage Measurement Technology
16

In addition to Hypres Inc., the first tier of the supply chain also includes manufacturers of what 

the industry refers to as voltage source “standards.” The worldwide market for all voltage output 

instruments is estimated at $60-100 million annually, and has been dominated by just three firms: Fluke 

Corporation, Wavetek Corporation, and Guildline Instruments.

38 These companies manufacture highaccuracy solid state voltage sources that are used as “golden” and transfer standards by electronic test 

and measurement equipment manufacturers. Fluke and Wavetek are also the principle manufacturers of 

multifunction calibrators. 

These source and calibrator instruments are utilized for production and quality control within the 

first tier of the supply chain. They are also utilized widely by calibration service providers in the second 

tier of the supply chain, as well as in the manufacture and quality control processes of third-tier voltage 

measurement manufacturers. 

The second tier in the supply chain is comprised of about 50 organizations that provide highaccuracy voltage calibration services commercially.39 The annual value of all voltage calibration services 

(not just the highest accuracy services) may be as high as $2 billion worldwide. Domestically, the annual 

value of these services is estimated at $600 million.40 Presently, it is unclear what fraction of these 

markets requires calibration services with accuracies at the level provided by NIST's Josephson volt 

system technology.41 The voltage source manufacturers (the first-tier of the supply chain) provide a 

significant share of these services through networks of service centers that each maintains, thus showing 

a degree of 

vertical integration. Additionally, many of the large aerospace and defense contractors have established 

large, well-equipped, and well-staffed “primary” standards laboratories. Most of these sell services to 

customers outside the parent company.42

 

38

 Wavetek Inc. merged with Fluke Corp. in 2000.

39

 We estimate that there are approximately 350 calibration service providers domestically. This estimate is derived 

from “Laboratories and Capabilities,” pp. 42-81, A Directory of Standards Laboratories, 1999-2000 Edition, 

(National Conference of Standards Laboratories). NIST provides calibration services to approximately 50 of these 

organizations. We assume that these 50 represent the majority of organizations that provide the highest accuracy 

calibration services.

40

 This is a single point estimate in need of refinement. The U.S. Census of Services does not provide sufficient detail 

to derive such an estimate on the basis of published data.

41

 We are currently communicating with NCSL and NIST to arrive at an approach to segmenting the calibration 

services tier of the supply chain. Approximately 50 of these labs rely on NIST calibration services. Some multiple of 

these is the likely “high-accuracy” segment that will be our focus.

42

 Fluke, 1994, p.6-9.
17

At the third level of the supply chain are the producers of precision voltage measuring 

instruments that are often used as transfer standards, working standards, and workload instruments. 

Such equipment measures the parameters of an incoming voltage signal. In particular, digital voltmeters 

are dependent on high-accuracy voltage calibration. 

The world market for digital voltmeters is estimated at ~$400 million. Only a small fraction of 

these instruments require the high-accuracy calibration technology that derives from NIST.43 Market 

leaders for voltage measurement devices include Agilent (Hewlett-Packard), Keithley, Fluke, Wavetek, 

Tektronix, and LeCroy. Table 3 provides estimates of the distribution of these voltage measurement 

instrument sales across broad user sectors.

Table 3. User Market Shares for Voltage Measurement Instruments44

Using Sector Percent Voltmeter 

Sales

Communications 24

Industrial Electronics 20

Military & Aerospace 12

Computer & Business 8

Transportation 8

Consumer Electronics 8

Semiconductor Mfg. 4

Medical & Pharmaceutical 2

Other (e.g., utility companies) 15

The fourth and final level of the supply chain includes the users of equipment that require voltage 

measurement as part of normal operations. Among the most sophisticated users of voltage measurement 

instruments are aerospace companies and defense contractors. As explained above, government 

organizations are also users of sophisticated voltage measurement equipment. As depicted in Figure 4, 

above, within large manufacturing and system maintenance organizations, there are likely to be several 

“consumers” of high-accuracy voltage metrology: the central metrology laboratory; local calibration 

laboratories; equipment maintenance organizations; and local production organizations responsible for 

quality control.

 

43

 We are currently communicating with NIST to establish a basis for making this determination. We believe that the 

solution will revolve around “manufacturers specified accuracies.” Whether a systematic source of such 

information is available is being explored.

44

 These estimates were provided by Wampler & Associates, 1999.
18

2.2.2 Industry Conduct

The domestic industrial suppliers of electronic test and measurement instruments in all levels of 

the supply chain are strongly oriented toward international markets. In 1999, the industry sectors to 

which these firms belong are expected to post a $3 billion trade surplus.45 According to the Security and 

Exchange Commission (SEC) filings of leading instrument 

manufacturers, a significant share of annual revenue is generated from exports. The importance of the 

export market is reflected in the international marketing alliances that leading competitors have made 

over the past decade. 

In addition to their international trade motivations, voltage instrument manufacturers’ market 

strategies are driven by the following trends:

• Growing device complexity and electronic content in a broad spectrum of 

products and services 

• Increasing reliance on mission critical electronic systems

• Decentralization of electronic systems 

• Increasing need for companies to improve quality, document compliance 

with regulatory or industrial standards, and maintain a safe working 

environment, as required, for example, in ISO 9000

• Movement of quality control techniques from off-line sampling to in-line 

control 

• Minimization of development time 

• Pursuit of cost reductions throughout the product design process.46

These trends have guided the product/service development and marketing strategies of leading firms.

NIST's strategy in developing and transferring its JVS technology appears highly 

complementary to these industry trends. Clearly, the major focus of NIST's program, in both its system 

development and calibration services thrusts, has been to support the highest worldwide standards of 

 

45

U.S. Industry & Trade Outlook '99, McGraw-Hill, 1999, Table 23-1, “Industrial and Analytical Instruments (SIC 382) 

Trends and Forecasts,” p. 23-1, 23-4.

46

 These trends were identified in the SEC 10K reports of leading voltage source and measurement instrument 

manufacturers: Keithley, Wavetek, Hewlett-Packard, and Fluke.
19

accuracy. NIST’s strategy of developing portable and stable JVS systems, to assure easy access to the 

highest accuracy base, appears consistent with both the increasing electronic content of manufactured 

systems and the decentralization of electrical systems.47 In addition, instrument manufacturers report that 

NIST's JVS technology has contributed significantly to the timely development of high-accuracy voltage 

measurement technology. 

2.3 MARKET BARRIERS AND FRICTIONS

From an economic perspective, several factors have contributed to underinvestment by the 

private sector in the electronic metrology technology discussed here. Such underinvestment is caused by 

what economists refer to as market barriers and frictions. These factors, in turn, can lead to market 

failures, the principal economic rationale for public investment in technology infrastructure.48

NIST has long has a public mandate to establish standards for electrical measurements. From 

an economic perspective, NIST serves this function because of the high public good content of the 

underlying infratechnology.49 One of the chief requirements of effective standards is the thorough 

characterization of the underlying artifact, process, or method and the broadest possible diffusion of this 

information. The more freely these details are shared, the more effective the standards employing the 

infratechnology. Because of their needs to appropriate the fruits of their investments, private sector firms 

typically have few incentives to provide free access to their technology, especially when the cost of 

establishing the capability are high. Hence, public sector organizations are charged with the responsibility 

for maintaining standards of electrical measurement. 

A second, related, reason for the primacy of public investment in basic voltage metrology is the 

nature of the infratechnology in question. According to Tassey, “infratechnologies” not only have 

common use characteristics (including their use as standards), but they often derive from a different 

science and generic technology base than the core technology being developed by internally funded 

 

47

 For early articulations of these goals, see R. Dziuba, B. Field, and T. Finnegan, “Cryogenic Voltage Comparator 

System for 2e/h Measurements,” IEEE Transactions on Instrumentation and Measurement, Vol. IM-23, No. 4, 

December 1974; and B. Field and V. Hesterman, “Laboratory Voltage Standard Based in 2e/h,” IEEE Transactions 

on Instrumentation and Measurement, Vol. IM-25, No 4 December 1976.

48

 Noll, R. G., “Economic Perspectives on the Politics of Regulation,” in Handbook of Industrial Organization, Vol. II, 

R. Schmalensee and R. Willig (Eds.) Elsevier 1989, pp. 1253-1287.

49

 G. Tassey, The Economics of R&D Policy, (Quorum Books) 1997, p. 175.
20

industrial R&D.50 This was almost certainly the case with the Josephson volt standard. The research that 

led to implementation of the Josephson effect as the basis for the legal representation of the volt was 

very basic and exploratory in nature. The technical risks involved in these undertakings undoubtedly 

resulted in formidable barriers to private sector investment.51

Market frictions are said to exist when buyers and sellers of products experience difficulties in 

assessing the quality or compatibility of products. To mitigate these frictions, market participants incur 

what economists refer to as “transaction costs:” the cost of finding parties with whom to trade, the costs 

of writing contracts and policing agreements, and the cost of bargaining. 52 The maintenance of the U.S. 

representation of the volt dramatically reduces transaction costs that would otherwise be involved in the 

buying and selling of sophisticated electronic goods and services. While this is generally true of NIST’s 

involvement in the traceability process, it is exemplified in the case of voltage standards by the 

government’s role as a buyer and regulator of products and services whose quality could have important 

public consequences. For example, the government is the buyer and seller of sophisticated military 

equipment and demands that it be maintained to the highest national standards. This functionality, in turn, 

depends on the maintenance of traceable performance by technologically sophisticated aerospace 

contractors and government metrology laboratories.

For consumers and producers of voltage source and measurement instruments, as well as 

consumers and vendors of high-accuracy calibration services, the availability of high-quality, 

independent, calibration capability has certainly reduced the transaction costs that would otherwise have 

slowed the pace of market activity. According to manufacturers of both voltage sources and voltage 

measurement instruments, NIST’s capability has been critical to 

 

50

 G. Tassey, “R&D Trends in the U.S. Economy: Strategies and Policy Implications,” Planning Report 99-2, Program 

Office, Strategic Planning and Economic Analysis Group, National Institute of Standards & Technology, U.S. 

Department of Commerce, April 1999, p. 40.

51

 The only alternative source of the JVS technology of which we are aware came from other national laboratories—

particularly the German national laboratory, the PTB. The German PTB and NIST perceived themselves to be 

engaged in a technical competition with national technological prestige at stake. (Personal communication with C. 

Hamilton, January 1999) Over time, other nations’ have implemented JVS technologies as well but none are 

believed to have gone as far as NIST in developing a practical, transportable, and transferable technology. 

52

 Williamson, Oliver, The Economic Institutions of Capitalism, The Free Press, 1985, pp. 18-19.
21

manufacturers in testing the stability of new instrument designs and in maintaining production quality 

control.53

Finally, early in the history of the Josephson volt standard program, NIST became a source of 

highly specialized know-how in the relatively new field of Josephson junction applications. NIST’s 

expertise concerning metrological applications of Josephson junction technology enabled dissemination 

efficiencies for public technology goods compared with distributed private sector investment. This was 

not a permanent government role. As market acceptance expanded, the private sector was capable of 

taking over NIST’s technology diffusion function. NIST has actively transferred its system 

infratechnology to Hypres Inc. over the past decade.54

2.4 ASSESSMENT FRAMEWORK AND APPROACH

2.4.1 Hypothesized Outcomes

Table 4 summarizes our hypotheses about the nature of the economic barriers that have been at 

work in the market for the most sophisticated voltage output and voltage measurement products and 

services. Table 4 also identifies the beneficiaries of NIST’s technology, the benefits expected to be 

realized by users, and the comparison scenario against which economic benefits are to be measured. 

From an economic perspective, NIST’s 10 volt JVS transfer program was established to mitigate these 

barriers and compensate for the under-investments in this socially valuable technology. The 

conceptualization of the economic benefits of NIST’s investments are derived from a concrete 

understanding of how industry would have behaved, and how the products and services of industry 

would have performed, in the absence of NIST’s efforts.

 

53

 Personal communication with Agilent (Hewlett-Packard), March 3, 1999; Keithley, April 2, 1999 

54

 Actually NIST technology transfer efforts began in late 1987 with a now-defunct company, RMC Inc. RMC was not 

interested in acquiring Josephson array fabrication technology. The German national standards lab, PTB 

(Physikalis ch-Technische Bundesansalt) pursued a similar technology transfer strategy with the German firm, 

Prema. PTB’s 10 volt Josephson standard technology was not available for sale or transfer until 1996. (Personal 

communication with PTB, March 12, 2001.)
22

Table 4. Working Hypotheses: Barriers, Outputs, and Benefits

Market 

Barriers

Related NIST 

Outputs

Hypothesized 

Outcomes

Beneficiaries Benefit Measures Comparison 

Scenario

Infratechnology

Concentration of 

specialized 

know-how at 

NIST

10V JVS 

technology

Technical 

expertise

Enabler of new 

measurement 

instrument designs 

(esp. linearity of 

ADCs for “highend” digital multimeters (DMMs) 

and multifunctional 

calibrators 

(MFCs))

Metrology/QC 

process efficiencies

Frequency of 

calibration increases

JVS system 

owners

Profit margins on sales 

of instrumentation that 

would have been 

delayed

Product development 

cost savings

Product time-tomarket savings 

Total metrology/QC 

budgets

Scrape & re-work cost 

savings

Adopting 

technology through 

in-house efforts or 

through German 

PTB

2.4.2 Comparison Scenario

As described in Section 1.5 above, NIST was consciously engaged in a race for the 

development and application of the Josephson effect to voltage measurement problems with other 

national laboratories. From the historical record it appears that the German national standards 

laboratory — Physikalisch-Technische Bundesansalt (PTB) — was the closest to developing an 

applicable 10 volt Josephson system that could be viewed as a substitute for NIST’s JVS. It is certainly 

conceivable that private sector voltage instrument manufacturers or universities might also have filled the 

niche had NIST not made the investments that led to the JVS. On the basis of these observations, and 

interviews with industry representatives, user benefits are estimated in comparison to a counterfactual 

scenario that posits a time gap between the year in which the users’ JVS system became operational 

and the time substitute technology — developed in-house or purchased from the German PTB —

would have been available. Survey respondents typically identified PTB as the source of alternative 

technology, if it had not been available from NIST. PTB’s 10 volt Josephson technology was first sold 

in 1996.
23

2.4.3 Impact Estimation Timeframe (1987-2000)

The timeframe for assessing the costs and benefits of NIST’s 10 volt JVS technology transfer 

program begins with the development and initial fabrication of a 10 volt Josephson arrary, in 1987, and 

ends in the year of the assessment survey, 2000. NIST’s program costs, user organizations’ “pull 

costs,” and estimates of users’ economic benefits are available for this period based on NIST’s records 

and the results of a survey of 10 volt JVS system owners designed and implemented as part of this 

impact assessment. 
24

3. SURVEY FINDINGS

3.1 SURVEY POPULATION AND SAMPLE

All Government- and private-sector metrology laboratories that employ a 10 volt JVS were 

contacted through an iterative e-mail and telephone survey. The survey population is depicted in Table 

3 of Section 2.2.1 above. A number of respondents did not provide sufficient information to be useful 

in either the qualitative or quantitative aspects of the impact assessment. Three organizations declined to 

participate — two manufacturers and two government laboratories. Survey respondents are shown in 

Table 5 along with the year their 10 volt JVS systems became operational. During the course of the 

survey it was discovered that multiple NASA metrology laboratories share a “portable” JVS system. 

Few of these labs provided sufficient quantitative information to appreciably affect the economic impact 

estimates.

Table 5. Survey Respondents and Year of JVS Implementation

JVS Owners Year Operational

Commercial

Lockheed Corp. (Missile & Space Div.) 1987

Agilent Inc. (Hewlett-Packard) 1988

Fluke Inc 1991

Keithley Inc. 1992

Boeing Company 2000

Government

U.S. Navy/NAVAIR 1988

U.S. DoE 1991

U.S. Army/Redstone 1992

U.S. Air Force 1996

NASA/WSTF 1997

NASA/KSC 1997

NASA/Ames 1997

NASA/Stennis 1998

NASA/JSC 1998

NASA/JPL 1998

 
25

3.2 QUANTITATIVE FINDINGS

Survey respondents provided estimates of four categories of benefits attributable to the transfer 

and implementation of NIST technology: benefits related to equipment cost savings, labor cost savings, 

external failure cost savings (warranty, scrap, rework, re-test), and sales revenues that would not have 

materialized had they not owned a 10 volt JVS system. 

The estimates were the product of a three-part analysis process in which respondents were 

asked to assess: 

?? Technical consequences and associated costs of maintaining the highest possible level of 

measurement quality in the absence of 10 volt JVS technology 

?? Annual costs to maintain such an alternative system (economically and technically) 

?? Cost comparisons of the actual and counterfactual system implementations. 

The difference between the total cost of maintaining their own JVS system and the total cost of 

operating an alternative approach to voltage metrology is the estimate of the annual benefit attributable 

to the JVS technology from the NIST infratechnology. 

A relatively important source of benefits to the commercial sector has been the sale of 

sophisticated voltage measurement equipment that industry representatives assert would not have been 

available to the market were it not for the 10 volt JVS technology. Roughly speaking, this category of 

benefits accounts for 78% of all benefits in the period (1992 – 1995) where benefits were the largest 

and were realized in all four benefits categories. Industry representatives claim that high-end voltage 

measurement equipment with high levels of accuracy and precision would not have been possible were it 

not for the JVS technology that allows the linearity of their measurement systems to be tested and 

verified.55

These estimated benefits were only attributable to NIST so long as an alternative source of 10 

volt JVS system technology was not available. PTB’s substitute technology would have been available 

in 1996. The annual benefits estimated by respondents were only credited to NIST for the years 

 

55

Generally speaking, “linearity” refers to a directly proportional (i.e., “straight line”) relationship between two 

variables. Linearity error is an important concern for voltage source and measurement manufacturers and users. 

Liner instrument response is typically specified. In simple terms this means, for example, that if one doubles an 

instrument’s input signal, the device that records that change of input records a doubling of the device reading.
26

between the year in which the respondents’ JVS became operational and 1996. This empirical decision 

makes the resulting benefit estimates conservative because attributing some portion of the post-1996 

benefits to NIST could have been justified. Also, where respondents identified sales revenue that would 

not have been available in the absence of a 10 volt JVS system, only the value added (estimated profit 

margin) on the pre-1996 sales was claimed as part of the benefit stream attributable to NIST’s 

investments. 

3.3 QUALITATIVE FINDINGS

There seems to be a significant difference between what might be called a product development 

perspective concerning NIST’s 10 volt JVS technology and a calibration services perspective. From the 

product development perspective, NIST’s JVS technology transfer program was fundamental. 

Manufacturers of sophisticated voltage measurement instrumentation have benefited the most from this 

technology. Their estimates dominate the benefit stream used to calculate the economic impact of 

NIST’s investments. According to one industry representative, “I was not aware of an alternative to the 

JVS system at any cost [emphasis added]. Without an on-site JVS system we could not have 

developed the [high-end instrument] with the specs it has, and a reduced spec product might have been 

delayed for several years.” Another manufacturer of a voltage measurement instruments remarked, “The 

technical development by NIST was crucial to us having a JJ system here.”

The linearity of the A/D converters in their instruments was essential to the development and 

sale of new sophisticated and profitable voltage measurement instruments. The JVS system enabled 

manufactures to evaluate their products at a level not previously possible. With the JVS in house, error 

data could be provided to instrument design teams. When respondents were pressed to imagine a 

process by which there instrument development programs could employ external technical services to 

achieve the same ends, the possibility was deemed unlikely. Ownership was critical.

From a voltage calibration services perspective, on the other hand, the 10 volt JVS system is a 

sophisticated and technically demanding investment. The expense and technical effort needed to 

operate and maintain the system was commented on widely by survey respondents. Several 

respondents asserted that, from a calibration-services point of view, it was not worth the investment. 

Typically, that is, calibration services customers were not interested in achieving uncertainty levels made 

possible by the JVS system.
27

“Technological overkill” captures the sense expressed by many respondents. Even producers 

of very sophisticated equipment argue that the measurement quality provided by the JVS is well beyond 

their calibration requirements. A few respondents cited “prestige” rather than technical requirements as 

the primary cause of their organization’s investment in 10 volt JVS technology. They were unable to 

translate this prestige into economic value.

One calibration laboratory manager articulated both perspectives when he complained that he

had to make the best of an expensive and difficult device that was “inherited from the product 

development side of the house.”

For instrument manufacturers, the JVS technology has another important economic implication. 

Manufacturers refer to the “prestige” associated with early market presence of “high-end” products. 

From an economic perspective an important facet of this prestige can be viewed as transaction cost 

economies. In response to questions concerning such costs, one respondent replied, “I don’t know 

how much effort it takes for the average sale, but after the reputation of the instrument was established, 

I’ll bet it doesn’t take much to sell one.”

Similarly, in response to questions concerning the value of high-end measurement instruments to 

their users, a manufacturer explained that, “customers will probably not know which of the [high-end 

instrument] specs they rely on that, in turn, rely on the JJ and which ones do not. And I'm sure some 

customers just buy it because it is the best you can buy, and so for performance applications it is a 

"safe" buy, without analyzing which features they must have, which they want etc.” In other words, by 

buying “too much,” users are paying a premium to compensate for the lack of knowledge required to 

understand their technical requirements, determine which instruments provide those requirements, and 

thereby acquire the knowledge needed to procure the appropriate technology. 
28

4. QUANTITATIVE ANALYSIS

4.1 BENEFITS

Broadly speaking, two types of benefits accrued to JVS system owners as a result of the 

transfer of NIST’s 10 volt JVS technology: cost avoidance benefits and new product benefits. Cost 

avoidance benefits were formulated through a comparison of actual process costs to hypothesized 

process costs employing less advanced measurement technology that would have been employed in the 

absence of NIST technology.

New product benefits are derived from estimates of profit margins on revenue from the sale of 

equipment whose development, according to industry representatives, depended on NIST JVS 

technology. Based on survey information, a factor of 20 percent represents a conservative estimate of 

the profit margin on sales revenue estimates provided by survey respondents.56

Both types of benefits were assigned to NIST only for the period of time in which no substitute 

for the NIST 10 volt JVS system was available. The time series of these combined benefits, in nominal 

dollars is presented in Table 6.57

 

56

 Interviews with industry representatives indicate that net profits for the kind of high-end measurement instruments 

discussed here range between 10 percent and 30 percent.

57

 Due to the nature of the comparison scenario, most benefits occur prior to 1996. One government laboratory that 

adopted the JVS technology relatively late, but would not have adopted a PTB solution, estimated cost avoidance 

benefits for the 1997-1999 period.
29

Table 6. JVS Owner Benefits

Year

Annual

JVS Owner 

Benefits

(Nominal $)

1987 140,000

1988 2,400,000

1989 2,400,000

1990 2,500,000

1991 2,800,000

1992 4,000,000

1993 4,000,000

1994 4,000,000

1995 4,300,000

1996 0

1997 56,000

1998 56,000

1999 57,000

4.2 NIST EXPENDITURES & JVS OWNER “PULL COSTS”

The cost associated with the development and transfer of the 10 volt JVS system technology 

are of two types: NIST expenditure and the one-time costs expended by JVS system owners to acquire 

the technology from NIST. NIST expenditures were estimated for the two NIST organizations 

involved in the development and implementation of the 10 volt JVS: NIST’s Electricity Division in 

Gaithersburg Maryland, and NIST’s Electromagnetic Technology Division in Boulder, Colorado. These 

cost estimates consist of total compensation paid to NIST employees for efforts that contributed directly 

to the development, fabrication, integration, and testing of the 10 JVS system and its components.

JVS owners were asked to estimate the initial one-time costs over and above the cost of the 

JVS technology itself. These “pull costs” are typically expended for technical consultants, material, or 

research required to make the technology operational in the owner’s particular setting. The time series 

of NIST expenditures and user pull costs, in nominal dollars, is presented in Table 7.58

 

58

 Pull costs were estimated on the basis of survey responses. Gaps in the time series of these costs reflect the timing 

of respondents’ system implementations.
30

Table 7. NIST Expenditures & Owner “Pull Costs” (Nominal $)

Year

NIST

Costs

(Nominal $)

Pull

Costs

(Nominal $)

Total

Cost

(Nominal $)

1987 330,000 11,000 340,000

1988 410,000 85,000 500,000

1989 490,000 31,000 530,000

1990 510,000 170,000 670,000

1991 400,000 140,000 540,000

1992 390,000 180,000 570,000

1993 400,000 0 400,000

1994 410,000 14,000 430,000

1995 420,000 14,000 440,000

1996 57,000 0 60,000

1997 58,000 4,000 60,000

1998 59,000 0 60,000

1999 60,000 0 60,000

4.3 MEASURES OF ECONOMIC IMPACT

Table 8 transforms the nominal costs and benefits reported in Tables 6 and 7 into a series of 

constant 2000 dollars that provides the basis for the summary economic impact estimates reported 

below: social rate of return (SRR), net present value (NPV), and benefit-to-cost ratio (B/C).59 (For a 

explanation and discussion of these metrics, see Appendix C.)

 

59

 The deflator used to convert to constant dollars is the Gross Domestic Product Price Index (chain type), Economic 

Report of the President, 2001, Table B7.
31

Table 8. Constant 2000 Dollar Benefits and Costs (1987 – 1999)*

Year

Constant Dollar 

Benefits

($2000)

Constant Dollar 

Costs 

($2000)

Constant

Dollar

Net Benefits

($2000)

1987 190,000 470,000 -280,000

1988 3,100,000 660,000 2,400,000

1989 3,100,000 670,000 2,400,000

1990 3,100,000 830,000 2,300,000

1991 3,300,000 650,000 2,700,000

1992 4,700,000 670,000 4,000,000

1993 4,700,000 460,000 4,200,000

1994 4,700,000 470,000 4,230,000

1995 4,700,000 470,000 4,230,000

1996 0 61,000 -61,000

1997 58,000 65,000 -7,000

1998 58,000 61,000 -3,000

1999 58,000 61,000 -3,000

* The deflator used to convert current to constant dollars is the Gross Domestic Product Price Index (chain type), Economic Report of the President, 2001, 

Table B7.

Based on the time series presented in Table 8, estimates of the economic impact metrics for 

NIST’s 10 volt JVS technology program are displayed in Table 9. 

Table 9. Estimates of Economic Impact 

Performance Metric Estimate

Net Present Value in 1987 $18,700,000

Net Present Value in 2000 $45,100,000

Real Social Rate of Return 877%

Benefit-to-Cost Ratio 5

There is reason to believe that the metrics reported above understate the true economic impacts 

of NIST’s JVS program. First, the economic impact of the JVS technology on NIST’s national 

calibration services was not considered within the scope of this assessment. While the two programs are 

in many ways integral, understanding the structure of the market for calibration services — a necessary 

first step — would have involved research that was beyond the financial scope of the project. In 

addition, the 10 volt JVS system employed by NIST is used to check NIST calibration instruments. It is 

not used directly to calibrate the instruments of NIST’s customers. Therefore, conceptualizing the 

benefits of the 10 volt JVS system in a manner that would be sensible to NIST’s calibration services 

customers proved impractical. As a results, only the impact of transferred 10 volt JVS hardware and 

software was assessed.
32

Second, even within the context of the rather straightforward assessment of transferred physical 

assets, many respondents were unable or unwilling to respond to the counterfactual experiment posed in 

the survey. It is typical to receive readily available technical information but uncommon for respondents 

to “think through” the less obvious issues of economic impact. That several NIST customers expended 

the energy to do so is a credit to them and to the relationships with industry that NIST has cultivated. 

Third, the sales of high-end equipment voltage measurement equipment, that figure so 

prominently in this quantitative analysis of economic impact, have a prestige effect that has an impact on 

the sales of products other than those directly related to the JVS technology. During the early years of 

these sales, the United States was the unrivaled source of this technology. Interviews indicate that 

considerable spillover prestige (i.e., good will) probably accrued to US companies offering high-end 

instruments to the market. Several electrical parameters derive from the volt: electrical resistance, 

electric capacitance, and conductance. To the extent that the instruments used to measure these 

parameters are different than those used to measure voltage, it is likely that some fraction of their 

worldwide market success is attributable to JVS technology.

Finally, industry representatives believe that “the real impact” of JVS technology is at the next 

tier in the supply chain — the application of JVS-enabled voltage measurement technology (DMMs and 

MFCs) in a production environment— where they should have a substantial impact on scrap, rework, 

and re-test. The ability to introduce sophisticated measurement instruments to the shop floor, in the late 

1980s and throughout the 1990s, depended on the ability to calibrate and verify their performance. 

While industry representatives agree that these benefits are likely, they were unable to identify points of 

contact that could respond knowledgeably on economic impact issues.
33

APPENDIX A — VOLTAGE CALIBRATION AT NIST

In 1972, NIST implemented the initial Josephson volt system in place of Weston battery cells 

for maintaining the national representation of the volt. Yet, Weston cells are still used at NIST and in 

many calibration laboratories because they exhibit good voltage stability and a long, useful life. They 

require special environmental control (temperature-regulated oil or air bath) and can be unstable for 

months following unanticipated changes in their environment. In addition, even under controlled 

conditions, their voltage output values drift over time. This drift is one reason that the Weston cell was 

officially replaced by the NIST-developed Josephson system. According to one source, Weston cells 

are becoming difficult to obtain and are being phased out and replaced by solid state voltage output 

devices.1

The electronics calibration laboratory at NIST is similar to the calibration laboratory of any 

sophisticated producer or user of electrical test equipment.2 The Weston battery cell, its electronic 

counterpart (solid state voltage references), and the NIST-developed Josephson volt system continue to 

be used in an integrated system of voltage references at NIST as well as in industry standards 

laboratories across the nation.

NIST maintains four tiers of voltage standards:

(1) 10 volt JVS system & one volt JVS system 

(2) NIST “Primary Standards” (Weston cell banks)

(3) Working Cell Groups (Weston cell banks)

(4) Check Standards (solid state references and saturated cells)

NIST's calibration laboratory maintains many banks of Weston cells that are used for different 

specific functions depending on their historical performance characteristics (e.g., stability and accuracy). 

The two best performing banks are designated "NIST Primary Standards," which are calibrated against 

the one volt Josephson system on a monthly basis. The 1 volt Josephson system is also compared with 

 

1

 See Fluke, 1994, pp. 7-12, 7-15.

2

 NIST's calibration lab is believed to be typical of advanced electrical metrology labs. (Personal communication with 

NIST’s Calibration Laboratory, April, 1999.)
34

the Josephson 10 volt system monthly to assure the long term and short term consistency of the two 

systems. 

All the Weston cells that are not designated as "primary standards" are used as "Working Cell 

Groups" (WCGs) and “Check Standard Cell Groups” (CSCGs). All of the NIST solid state standards 

are solid state check standards (SSCSs). The WCGs are the standards used as the reference voltages 

in the three measurement systems. The measurement systems’ check standards are CSCGs and SSCSs 

and replacement WCGs are selected from the SSCSs. The three WCGs are calibrated against the 

NIST Primary Standard cells on a daily basis. All check standards and customer (outside) standards 

are calibrated against the WCGs on a daily basis. Finally, one solid state "check standard" is calibrated 

against the 10 volt Josephson system on a monthly basis.

Volt Calibration is managed by three measurement systems: System 1, System 2, and System 3. 

System 1 handles the calibration of the three WCGs and the standard cell groups that are used in 

NIST’s Measurement Assurance Program (MAP). NIST's Measurement Assurance Program (MAP) 

ships standard cell groups with known performance attributes from NIST to industrial and other 

government sites for in situ assessment of outside calibration laboratory equipment.

System 2 is described as "the workhorse" of the NIST calibration laboratory. It performs the 

normal workload of calibrating solid state and saturated cell reference standards from other NIST 

laboratories and outside organizations. System 3, in turn, is very similar to System 1. It provides the 

back-up capability necessary for routine maintenance and also supports periodic surges in the 

calibration workload. 
35

APPENDIX B — ELECTRICAL METROLOGY IN PRACTICE

The Voltage Calibration Process

The calibration function entails three major tasks:

• Setup activities, which involves identifying instruments to be calibrated, 

determining calibration intervals, setting quality levels, documenting the 

location and use of instruments, establishing the kind of calibration test to 

be preformed and the place of calibration (on-site or in lab), and 

determining the skill level required to make various calibrations 

• Daily operations, including transporting instruments, performing tests, 

taking care of and repairing test instruments, making calibration 

adjustments, maintaining measurement standards, and returning calibrated 

instruments.

• Workload management, involving activities undertaken to improve the 

calibration process.1

The quality and cost of calibration is a function of the assignment and adjustment of calibration intervals 

and policies under the circumstances that measurements are made.2

Electronic measuring devices are generally divided into “source” instruments and “measure” 

instruments. Source instruments provide a means of emitting an electrical signal with well-defined 

characteristics. Calibrating a source instrument requires the use of an equivalent measuring instrument of 

sufficient accuracy so that the total uncertainty is within the instrument's specification. 

Similarly, measure instruments, such as a digital multimeter (DMM), are calibrated by 

comparison to a previously calibrated source instrument. Thus, to calibrate the voltage scales of a 

DMM, a DC voltage source of known output is needed. In either case, to complete the calibration 

process, you need a means of adjusting the instrument under calibration readings so that they match the 

values of the calibration standard. The crudest way to make this adjustment is with a calibration chart, in 

which measured values are plotted on the ordinate (horizontal) axis and the corresponding "actual" 

values are plotted on the abscissa (vertical) axis. When making subsequent readings using the measuring 

 

1

 Fluke, 1994, p. 19-3.

2

 Fluke, 1994, p. 24-3.
36

instrument, the user finds the reported value read from the instrument on the ordinate, and follows it up 

vertically until the calibration curve is reached. The user then moves horizontally to the abscissa to read 

off the measured value.

Most analog electronic instruments are calibrated by adjusting the gains and offsets of the 

various amplifiers in the instrument to bring its readings in line with the "actual" values. Depending on the 

particular instrument being calibrated and the uncertainty level to which it needs to be held, this is a 

more-or-less tedious manual operation.

The most sophisticated digital instruments have internal circuitry that applies calibration 

corrections before reporting readings. The measurement process is exactly analogous to using a 

calibration chart, except that the digital instrument performs this automatically. Thus, the calculation and 

application of calibration corrections is entirely invisible to the user.

The final step in calibrating an instrument is to prepare a document of relevant information about 

the calibration. This documentation may be as simple as affixing a calibration sticker that reports the 

date on which the calibration was done. More typically, additional information goes into the calibration 

report, such as the uncertainty level and when the next calibration is due. Calibration reports can 

become quite complicated, sometimes giving all of the measurements used and the results, calculations 

of secular drifts, etc. The amount of information required in the calibration report depends on the users' 

requirements.

To calibrate an electronic instrument, one must connect its terminals to those of the standard, 

take several readings at different levels, calculate the appropriate corrections, download those 

corrections into the instrument's memory (assuming the instrument has these capabilities built in) and 

create the calibration report.

Voltage Measurement Instrumentation: The "Production" Environment

The quality range of available measurement instruments blurs the line between the laboratory 

and production environments. High-end digital multimeters (DMMs), for example, can be as high in 

resolution and accuracy as the multifunction calibrators (MFCs) designed to calibrate them. DMMs 

typically measure a wide range of electrical stimulus, including direct voltage, direct current, alternating 

voltage, alternating current, and resistance.

There are three classes of DMMs: laboratory, bench, and hand-held. Laboratory DMMs 

typically provide the highest level of accuracy and resolution, approaching the accuracy of the MFC 
37

used to calibrate them. They display up to 8 1/2 digits in their readouts and are frequently calibrated 

automatically. Bench DMMs are very similar to the previous class but tend to have less accuracy and 

resolution, typically 4 1/2 or 5 1/2 digits. In many local calibration labs, the bulk of the workload is 

composed of bench DMMs. Handheld DMMs are the most commonly used and typically offer a wider 

set of measurement functions than the bench or laboratory versions. Their accuracy and resolution is 

typically 3 1/2 or 4 1/2 digits. Handheld DMMs tend to be used in a wide range of applications, from 

sophisticated electronic testing to automotive maintenance. Handheld DMMs are even used by 

hobbyists.

Electrical instruments and meters of all types are calibrated by adjusting their circuitry so that 

they report the correct value when measuring an electrical property. A DMM, for example, is 

comprised of a measurement section and a control section. The measurement section (made up of 

analog conditioning circuits and an analog-to-digital converter (ADC)) requires calibration to assure 

stability in its sources of variation (gain, offset, and linearity errors). Every DMM also contains a solid 

state dc voltage reference for the ADC. This internal reference is the limiting factor for the accuracy of 

all voltage and current measurements performed by the DMM. It requires calibration.3

 

3

 Fluke, 1994, pp. 17-4 - 17-18.
38

APPENDIX C — ECONOMIC IMPACT METRICS

Two evaluation metrics used customarily by NIST's Program Office are the internal (social) rate 

of return and the ratio of benefits-to-costs. A third metric, net present value, is readily derived from the 

information developed for the benefit-to-cost ratio.

The metrics in this report are calculated from a time series of costs and benefits in constant 

dollars. Therefore, "real" rates of return are presented based on this time series of constant dollars. In 

contrast, several previous economic impact assessments conducted by TASC for NIST's Program 

Office presented "nominal" rates of return that were based on time series of current dollars (the dollars 

of the year in which the benefits were realized or the costs were incurred). 

Internal Rate of Return (IRR)1 

The IRR is the value of the discount rate, i, that equates the net present value (NPV) of a stream 

of net benefits associated with a research project to zero. The time series runs from the beginning of the 

research project, t = 0, to a milestone terminal point, t = n. Net benefits refer to total benefits (B) less 

total costs (C) in each time period. Mathematically,

(1) NPV = [(B0- C0) / (1 + i)

0

] + ... + [(Bn- Cn) / (1 + i)

n

] = 0 

where (Bt- Ct) represents the net benefits associated with the project in year t, and n represents the 

number of time periods (years in most cases) being considered in the evaluation. For unique solutions of 

i, from equation (1), the IRR can be compared to a value, r, that represents the opportunity cost of 

funds invested by the technology-based public institution. Thus, if the opportunity cost of funds is less 

than the internal rate of return, the project was worthwhile from an ex post social perspective.

 

1

 The characterization of the three metrics follows Chapter 4 of Albert N. Link and John T. Scott, Public 

Accountability: Evaluating Technology-Based Institutions (Boston: Kluwer Academic Publishers) 1998.
39

Benefit-to-Cost Ratio 

The ratio of benefits-to-costs is precisely that, the ratio of the present value of all measured 

benefits to the present value of all costs. Both benefits and costs are referenced to the initial time period, 

t = 0, as:

B / C = [? t=0 to t=n Bt / (1 + r)t] / [? t=0 to t=n Ct / (1 + r)t]

A benefit-to-cost ratio of 1 implies a break-even project. Any project with B / C > 1 is a relatively 

successful project. 

Fundamental to implementing the ratio of benefits-to-costs is a value for the discount rate, r. 

While the discount rate representing the opportunity cost for public funds could differ across a portfolio 

of public investments, the calculated metrics in this report follow the guidelines set forth by the Office of 

Management and Budget:

Constant-dollar benefit-cost analyses of proposed investments and 

regulations should report net present value and other outcomes 

determined using a real discount rate of 7 percent.2

Net Present Value (NPV)

The information developed to determine the benefit-to-cost ratio can be used to determine net present 

value as:

NPV = B - C 

Note that NPV allows in principle one means of prioritizing among several projects ex post.

 

2

 “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs,” Office of Management and Budget 

(OMB), Circular No. A-94, 29 October 1992.