Nature's Numbers Expanding the National Economic Accounts to Include the Environment (1999) / Chapter Skim
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Appendix A Sustainability and Economic Accounting
Appendix A Sustainability and Economic Accounting
Pages 181-195
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From page 183... ...
The concern addressed by the Brundtland Commission was whether nations are wasting or abusing their natural endowments of minerals, soils, forests, and aquifers, along with vital environmental resources such as clean air and water, as well as the stock of genetic material. A parallel effort among economists has been the development of measures of national income and output that take notions of sustainability into account.
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From page 184... ...
In attempting to develop a careful definition of national income and output for production-based measures, economists have usually relied on the concept of Hicksian income, which defines net national output as the maximum amount that can be consumed while leaving capital intact (see also Chapter 2~.1 In practice, this means national output is defined as consumption plus net investment. This concept is the standard definition of NNP used in the national income accounts of virtually all nations today.
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From page 185... ...
, "The core of the idea of sustainability, then, is the concept that current decisions should not impair the prospects for maintaining or improving future living standards." For purposes of the present discussion, sustainable national income is defined as the maximum amount that can be consumed while ensuring that all future generations can have living standards that are at least as high as that of the current generation. It should be emphasized that the sustainability-based approachwhile deemed particularly useful and appropriate in the context of designing comprehensive national income accounts is but one of many approaches to analyzing the sustainability of an economy or of the interactions between the economy and the environment.
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From page 186... ...
Defining sustainability in this narrower sense is often useful as a guide to policy making or as a practical shorthand way of expressing certain desirable conservation goals, but it generally is too narrow and subjective to serve as a principle for constructing measures of national income. Moreover, if taken literally, the injunction to keep "natural capital intact" is probably infeasible because human activities inevitably cause the levels of some natural assets somewhere to decline.
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From page 187... ...
On the whole, despite its shortcomings, the broad measure of sustainability is likely to be the best single criterion for defining sustainable national income. This measure defines sustainable income as the maximum amount that a nation can consume while ensuring that all future generations can have living standards that are at least as high as that of the current generation.
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From page 188... ...
In other words, the sum of total consumption and net capital formation is equivalent to the maximum sustainable amount of consumption an economy can indefinitely maintain. Hence under idealized conditions, including zero population growth, extending the NIPA toward a comprehensive measure of Hicksian income would make output and income more accurate indexes of sustainable income.2 The balance of this section is devoted to explaining the outputsustainability correspondence principle; a number of qualifications to the principle are presented in the next section.
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From page 189... ...
That is, national income as measured by current comprehensive consumption plus the sum of the values of the net accumulation of assets in different sectors is equivalent to the maximum level of consumption that can be indefinitely sustained. Moreover, under the stringent conditions of a complete, internalized, optimal growth path, this measure of sustainable income will be exactly captured in measured NNP.
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From page 190... ...
Moreover, given the vast array of nonmarket activities from leisure and home-based investments in human capital to nonmarket consumption and investments in environmentally sensitive sectors there is a strong presumption that the residual may be significant and that current measures of national output do not adequately reflect sustainable income.
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From page 191... ...
These autonomous factors also lead to a divergence between sustainable income and measured national output. For example, if ongoing technological change leads to sustained productivity improvement, future generations will have higher levels of income than current generations, and current sustainable income is therefore higher.
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From page 192... ...
In principle, current approaches to measuring sustainable income treat revaluation in a way that is parallel to the treatment of autonomous dynamic influences. (In practice, such revaluations are rarely done in national income accounting.)
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From page 193... ...
A set of qualifications concerns departures from the idealized assumptions of perfect competition, perfect foresight in asset markets, and an optimal allocation of resources over time. It is particularly important to understand that sustainable national income is equivalent to the maximum that can be consumed while leaving endowments sufficient to ensure equivalent living standards for the future.
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From page 194... ...
SUMMARY There are many different approaches to sustainability. From the point of view of a national economy and national income accounting, a useful definition is that sustainable national income is the maximum amount a
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From page 195... ...
Measures of national income and output would be closer to the ideal measure of sustainable income if omitted consumption and net investment were included to obtain augmented income and output measures. Omitted items would include nonmarket consumption, such as home production, and final environmental services and nonmarket investment, such as changes in the value of resource stocks, along with investment in human capital.
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