Assigning Economic Value to Natural Resources (1994) / Chapter Skim
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1 An Almost Practical Step Toward Sustainability
1 An Almost Practical Step Toward Sustainability
Pages 17-29
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From page 17... ...
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From page 19... ...
PREVIEWING THE ARGUMENTS It will be useful if ~ tell you in advance where the argument is leading. It is a commonplace thought that the national income ant} product accounts, as currently laid out, give a mis ~Reprinted, with permission, from Resources for the Future, 1992.
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From page 20... ...
If two economies produce the same real GNP but one of them does so wastefully by wearing out half of its stock of plant and equipment while the other floes so thriftily and holds depreciation to 10 percent of its stock to capital, it is pretty obvious which one is doing a better job for its citizens. Of course the national income accounts have always recognized this point, and they construct net aggregates, like net national product (NNP)
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From page 21... ...
That is a brief preview of what I intend to say, but before going on to say it, I would like to mention the names of the economists who have contributed most to this line of thought. They include professors John Hartwick of Queen's University in Canada, Partha Dasgupta of the University of Cambridge, England, and Karl-Goran Mater of the Stockholm School of Economics; my sometime colleague Martin L
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From page 22... ...
Given this discounting of future consumption, we have to imagine that our toy economy makes its investment and resources-ciepletion decisions so as to generate the largest possible sum of satisfactions over all future time. The limits to this optimization process are imposed by the pre-existing stock of resources, the initial stock of reproclucible capital, the size of the labor force, and the technology of production.
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From page 23... ...
The correct charge for depletion should value each unit of resource extracted at its net price, namely, its real value as input to production minus the marginal cost of extraction. As Hartwick has pointed out, if the marginal cost of mining exceeds average cost, which is what one would expect in an extractive industry, then the simple procedure of deducting the gross margin in mining (that is, the value of sales less the cost of extraction)
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From page 24... ...
The very logic of the economic theory of capital tells us how to construct a net national product concept that allows properly for the depletion of nonrenewable resources, and also for other forms of natural capital. Carrying out those instructions is far from easy, but that only makes the process more interesting.
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From page 25... ...
To put it a little more precisely: net national product measures the maximum current level of consumer satisfaction that can be sustained forever. It is, therefore, a measure of sustainable income given the state of the economy capital, resources, and so on- at that very instant.
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From page 26... ...
While it is closely related to the proposition that NNP measures the maximum current level of consumer satisfaction that can be sustained forever, the second theoretical proposition I need is considerably more intuitive, although it may sound a little mysterious, too. Properly defined and properly calculated, this year's net national product can always be regarded as this year's interest on society's total stock of capital.
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From page 27... ...
The shadow value of resource depletion is exactly the aggregate of Hotelling rents. It is exactly the quantity that should be deducted from conventional net national product to give a truer NNP that takes account of the depletion of resources.
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From page 28... ...
The appropriate policy is to generate an economically equivalent amount of net investment, enough to maintain society's broadly defined stock of capital intact. Of course, there may be other reasons for adding to (or subtracting from)
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From page 29... ...
When poor countries in search of their own economic goals contribute to global environmental damage, much more difficult policy questions arise. Their solution is not so harci to see in principle, but the practical obstacles are enormous.
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