natural resources, research and development, and investments in human capital. These concerns reflect the reality that economic and social welfare, and even productive output, does not stop at the market's border, but extends to many nonmarket activities.
The traditional national accounts include primarily the output of marketed goods and services—that is, goods and services that are bought and sold in market transactions. Notwithstanding the importance of the traditional accounts, limiting them to transactions that take place in the marketplace may distort certain accounting aggregates as measures of economic activity and, certainly, of well-being. For example, nannies' services figure in GDP, while parents’ services do not; the value of swimming in a commercial swimming pool is captured by GDP, while the value of swimming in the Atlantic Ocean is not (Nordhaus, 2002).
In developing guidelines for an expanded accounting system, questions immediately arise concerning its scope, the classification of variables, and data coverage. First, one must consider what is meant by an “expanded” or “augmented” system. Augmented accounts are designed to measure human economic activity that takes place outside the marketplace and beyond the coverage of the core national accounts—to measure more fully what consumers currently enjoy in the way of goods and services and the accumulation of capital, of all kinds, that permits the future production of goods and services. Although many different approaches have been taken, one would ideally like to set the analytical boundaries of augmented economic accounts so as to measure as much economic activity as is feasible, regardless of whether it takes place inside or outside the marketplace. This is only a guiding principle, however, and determining the exact set of activities that should fall within the purview of a national accounting framework is far from obvious.
When goods and services are not bought and sold in markets, it is generally not possible to use conventional approaches to measure their value. Stocks of some natural resources, such as oil and gas, are priced in markets. But for many other environmental services—such as the value of clean air—and for much nonmarket economic activity— such as unpaid time spent exercising or teaching a child—valuation is more difficult. In addition, data covering nonmarket activities are not well developed, in part because there is no agreed-on valuation methodology. Also at issue are how to organize satellite accounts for nonmarket activity and how (and whether) to integrate them into the conventional national accounts.
Most recently, attention has focused on extending the accounts to include natural resources and the environment. The issues involved in environmental accounts were reviewed in a recent report, Nature's Numbers (National Research Council, 1999). In addition to its analysis of environmental accounts, that panel recommended adopting a program for developing a comprehensive set of near-market and nonmarket accounts:
The panel concludes that developing a set of comprehensive nonmarket economic accounts is a high priority for the nation. Developing nonmarket accounts to address such concerns as environmental impacts, the value of nonmarket natural resources, the value of nonmarket work, the value of investments in human capital, and the uses of people's time would illuminate a wide variety of issues concerning the economic state of the nation [National Research Council, 1999, p. 3].