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Net national product, wealth, and social well-being

    • Published online: 01 February 2000

This paper is about net national product (NNP). We are concerned with what NNP means, what it should include, what it offers us and, therefore, why we may be interested in it. We show that NNP, properly defined, can be used to evaluate economic policies, but we also show that it should not be used in any of its more customary roles, such as in making intertemporal and cross-country comparisons of social well-being. We develop such indices as would be appropriate for making those comparisons. In particular, we show that welfare comparisons should involve comparisons of wealth. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies, and are thus of limited use. Our analysis generalises this substantially by studying economies whose governments are capable of engaging only in policy reforms. We show how linear indices can be used for the evaluation of policy reform even in the presence of non-convexities in the economic environment. The analysis pertinent for optimising governments are special limiting cases of the one we develop.

The literature on green NNP has widely interpreted NNP as ‘constant-equivalent consumption’. We show that this interpretation is wrong. It is the Hamiltonian that equals constant-equivalent utility. Since both theory and empirics imply that the Hamiltonian is a non-linear function of consumption and leisure, the Hamiltonian should not be confused with NNP.

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Some of the arguments presented in this article were developed in collaboration with Bengt Kriström, to whom we are most grateful. However, he is not responsible for any error that may have entered here. In preparing the article we have benefited from conversations and correspondence with Kenneth Arrow, Geir Asheim, Jeremy Edwards, John Hartwick, Geoffrey Heal, Ravi Kanbur, Colin Rowat, Robert Solow, and Martin Weitzman. We are also grateful to the referees for their comments. Much of the work reported here was conducted while the authors were guests of Lolita Aniyar de Castro in Merida, Venezuela, and visitors at Resources for the Future, Washington, DC, in Spring 1998. We are most grateful to Lolita Aniyar de Castro and to Ray Kopp and Paul Portney, respectively, for making our visits not only possible, but also most pleasurable.
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Environment and Development Economics
  • ISSN: 1355-770X
  • EISSN: 1469-4395
  • URL: /core/journals/environment-and-development-economics
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