the natural environment. Businesses and governments need and want to know about basic market conditions in the world, the nation, and their region. Without good market and nonmarket information, firms are flying blind.

There are many examples of how conventional accounts send misleading signals about economic activity. When companies discover large deposits of oil, gold, and other mineral assets, these are not counted in the nation's investments or as increases in its wealth. Similarly, even though forests contribute greatly to the nation's well-being, only timber production is counted in the national output. the value of hunting, fishing, and other forms of nonmarket forest recreation is not counted as part of the national output even though the total economic contribution of these nonmarket forest outputs probably exceeds the value of the timber production (see Chapter 4). Outside the environmental sector, traditional accounts provide misleading estimates of economic activity because they omit nonmarket production and investment in important areas such as human capital and education and nonmarket work at home.

The largest distortion in the environmental area probably arises in the sectors relating to environmental quality. Economic studies reviewed in Chapter 4 indicate that the nation is devoting more than $100 billion annually to pollution abatement and control expenditures. Yet many of the economic benefits derived from these expenditures are omitted from the national accounts. Even though investments in clear air and water produce benefits in improved health of the population, improved functioning of ecosystems, improved recreational opportunities, and lower property damages, virtually none of these benefits are captured by current market-based economic accounts.

Second, environmental accounts would provide important information for management of the nation's public and private assets and for improved regulatory decisions. For example, enhanced natural-resource and environmental accounts can provide useful information on natural assets under federal management. Better information on the value of minerals on federal lands would be useful in determining appropriate royalty rates and leasing policies for resources not allocated through competitive auctions. For renewable resources, better information on the stumpage value of timber in national forests would be useful not only for accounting purposes, but also for improved management of these forests and for decision making on the balance of different uses among timber harvesting, wilderness preservation, recreation, and other uses. Better information on fisheries would be valuable to federal agencies responsible for management of these assets.

In the case of environmental resources such as air and water quality, a comprehensive set of environmental accounts would provide useful

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