Welfare measurement, sustainability, and green national accounting: a growth theoretical approach

Abstract

The work explores the limitations of traditional Net National Product (NNP) as a welfare measure and investigates how it can be augmented to create a more comprehensive “national product related welfare measure.” It addresses the exclusion of changes in natural resource stocks, environmental quality, and human capital from conventional net investment calculations, as well as the impact of external effects and disembodied technological change on welfare analysis. The study integrates these concerns within dynamic growth models, primarily using optimal control theory. It examines the conditions under which an augmented NNP can serve as a static equivalent to future utility, building on seminal research in the field. The research further delves into the relationship between welfare measurement and sustainability, analyzing concepts like Hartwick’s rule for constant consumption paths and contrasting utilitarian approaches with intergenerational equity considerations such as the “green golden rule.” Extensions cover open economies, non-constant time preferences, defensive expenditures, and welfare measurement under uncertainty, including stochastic time horizons related to issues like global warming. The aim is to provide a theoretical framework for social accounting that better captures true economic well-being and addresses long-term sustainability. – AI-generated abstract.