Can NNP be used for welfare comparisons?

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper contains a critical assessment of the claim that nnp can be used for welfare comparisons. The analysis assumes that national accounts are comprehensive (in particular, "greened" by taking into account environmental amenities and natural resource depletion), but does not assume optimal resource allocation. The general conclusion is that greater nnp does not correspond to welfare enhancement, unless the net investment flows are revalued. Real utility-nnp, and real measurable nnp made comparable across time by means of a consumer price index, allow for such revaluation, and thus indicate welfare improvement. Terms of use: Documents inKeywords and Phrases: National income accounting, dynamic welfare JEL Classification Numbers: C43, D60, O47, Q01 * I thank participants at the 12th Ulvön Conference on Environmental Economics for helpful comments.Address: Department of Economics, University of Oslo, P.O. Box 1095 Blindern, NO-0317 Oslo, Norway (e-mail: g.b.asheim@econ.uio.no) 1 Summary This paper contains a critical assessment of the claim that comprehensive net national product (nnp) can be used for welfare comparisons. The assertion that nnp is endowed with welfare significance has been subject to controversy, from the seminal contributions by Samuelson and Weitzman to a number of more recent articles. Here I contribute to this debate in the following two ways:1. I give an interpretation of the basic insights and results of welfare accounting in a general setting.2. Building on these insights I warn against using nnp for measuring the welfare effects of capital perturbations, and derive the result that real nnp growth in variable consumption and net investment prices can be used to indicate welfare improvement.The general conclusion is that greater nnp does not correspond to welfare enhancement, unless the net investment flows are revalued. Real utility-nnp, and real measurable nnp made comparable across time by means of a consumer price index, allow for such revaluation, and thus indicate welfare improvement. I reconcile my results with the findings presented in the relevant literature. I use the Dasgupta-Heal-Solow model to illustrate the analysis and results.I invoke weak assumptions concerning how dynamic welfare is derivedby not necessarily assuming discounted utilitarianism-and how the economy functions-by not necessarily assuming an optimal resource allocation mechanism. Throughout I am concerned with local comparisons, either "small...

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