Green national accounting for welfare and sustainability:A Taxonomy Of Assumptions And Results

DOIhttp://doi.org/10.1111/1467-9485.5002001
AuthorGeir B. Asheim
Published date01 May 2003
Date01 May 2003
GREEN NATIONAL ACCOUNTING FOR
WELFARE AND SUSTAINABILITY:
A TAXONOMY OF ASSUMPTIONS
AND RESULTS
Geir B. Asheim
n
Abstract
This paper summarizes assumptions made and results obtained in parts of the
literature on welfare and sustainability accounting. I consider five different
assumptions that can be imposed independently of each other, producing 32
different combinations. This taxonomy is used to organize results in welfare and
sustainability accounting. The analysis illustrates how stronger results require
stronger assumptions and thereby impose harder informational requirements.
I Intro ductio n
During the more than 25 years since Martin Weitzman published his seminal
paper (Weitzman, 1976) on the significance for dynamic welfare of comprehen-
sive national accounting aggregates, there have been many important theoretical
contributions on welfare and sustainability accounting. This literature shows
how national accounting aggregates can be used to measure differences in
welfare, both over time and across different economies, and to indicate whether
development is sustainable. It is, however, often not very transparent under
what assumptions different results on welfare and sustainability accounting will
hold. On this background I treat the topic systematically in this paper and
summarize assumptions made and results obtained in major parts of this
literature.
I consider five different assumptions that can be imposed independently of
each other, producing altogether 32 different combinations of assumptions. This
taxonomy will be used to organize the different results. The most general
analysis answering the ‘simplest’ problems and imposing the weakest assump-
tions will be addressed in Section III. Analysis requiring stronger assumptions,
but answering more ‘complicated’ questions will be addressed in Sections IV and
V. The presentation emphasizes the assumptions needed in order for results to
be of interest for practical estimation, thereby organizing the discussion of
informational problems that must be faced when doing empirical analysis. A
n
University of Oslo
Scottish Journal of Political Economy, Vol. 50, No. 2, May 2003
rScottish Economic Society 2003, Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA
113
discussion of methods to overcome informational constraints is contained in
Section VI. Two tables yield an overview of assumptions and results.
1
It is a prerequisite for most of the results that the list of goods and services
included in national accounting aggregates is comprehensive. The national
accounts are ‘comprehensive’ if all variable determinants of current well-being
are included in the vector of consumption flows, and if all variable determinants
of current productive capacity are included in the vector of capital stocks. For
example, compared to NNP as normally measured, one must ‘green’ the
national accounts by introducing natural resource depletion and environmental
degradation into the national accounts by (i) including such depletion and
degradation of natural capital as negative components to the vector of
investment goods, and (ii) adding flows of environmental amenities to the
vector of consumption goods.
II Model, A ssumpt ions, and Notation
This section presents the general model that will be used throughout the paper,
lists the five assumptions that will be considered, and introduces notation.
Model
Consider a setting where population is constant
2
and where the current
instantaneous well-being at time tdepends on the vector of commodities
C(t)5(C
1
(t),y,C
m
(t)) consumed at time t. To concentrate on the issue of
intertemporal distribution, we abstract from how the goods and services
consumed at time tare distributed among the population. Thereby we may
associate the instantaneous well-being at time twith the utility U(C(t)) that is
derived from the vector of consumption flows, C(t), at time t, where Uis a time-
invariant, increasing, and sufficiently differentiable function. Current consump-
tion is presumed to be observable, along with its associated vector of accounting
prices. For some of the results one must have that Uis concave.
That Uis time-invariant means that all variable determinants of current well-
being are included in the vector of consumption flows. In particular, non-
constant flows of environmental amenities flows derived from non-constant
stocks of natural capital are represented by components of the extended
consumption vector C. If labour supply is not fixed, then supplied labour
corresponds to negative components of the vector C. Thus, changes in
1
The present paper extends my earlier overview, Asheim (2000), by considering multiple
consumption goods and by presenting additional results. However, it leaves out concepts that
do not easily generalize to a multiple-consumption-good setting, and does not discuss the
relationship between green national accounting and social cost-benefit analysis.
2
It is worthwhile also to analyze the case with a changing population. There are results
available (cf., e.g., Hamilton, 2002) under exponential population growth when only per capita
consumption matters, provided that one is willing to assume CRS, introduced below.
Contributions where population growth need not be exponentital and where instantaneous well-
being also depends on population size are emerging (cf., e.g., Arrow et al., 2003; Asheim, 2002).
These result cannot as easily be integrated into the present taxonomy and are not treated here.
GEIR B. ASHEIM114
rScottish Economic Society 2003

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