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Decentralization Schemes, Cost-Benefit-Analysis, and Net National Product as a Measure of Social Well-Being

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  • Partha Dasgupta
  • Karl-Goran Maler
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    Abstract

    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 as a gauge for project evaluation, 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 such comparisons. In particular, we show that comparisons of social well-being should involve comparisons of wealth. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies. Our analysis includes not only such economies, but also those where the government is capable of engaging only in policy reforms.The literature on green NNP has widely interpreted NNP as a "constant-equivalent consumption stream". We show that this interpretation offers no purchase. It is the Hamiltonian that equals a constant-equivalent utility stream and we argue that, as the Hamiltonian is typically a non-linear function of consumption and leisure, it is of little practical use.

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    File URL: http://sticerd.lse.ac.uk/dps/de/dedps12.pdf
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    Bibliographic Info

    Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers with number 12.

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    Date of creation: Oct 1998
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    Handle: RePEc:cep:stidep:12

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    Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

    Related research

    Keywords: Allocative efficiency; cost benefit analysis; capital; investment; project evaluation;

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    1. Pearce, David W. & Atkinson, Giles D., 1993. "Capital theory and the measurement of sustainable development: an indicator of "weak" sustainability," Ecological Economics, Elsevier, vol. 8(2), pages 103-108, October.
    2. Dasgupta, Partha, 1998. "Population, consumption and resources: Ethical issues," Ecological Economics, Elsevier, vol. 24(2-3), pages 139-152, February.
    3. M. L. Weitzman, 1974. "On the Welfare Significance of National Product in Dynamic Economy," Working papers 125, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Hahn, F H, 1971. "Equilibrium with Transaction Costs," Econometrica, Econometric Society, vol. 39(3), pages 417-39, May.
    5. Hartwick, John M, 1977. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," American Economic Review, American Economic Association, vol. 67(5), pages 972-74, December.
    6. Sefton, J. A. & Weale, M. R., 1996. "The net national product and exhaustible resources: The effects of foreign trade," Journal of Public Economics, Elsevier, vol. 61(1), pages 21-47, July.
    7. Asheim, Geir B, 1997. " Adjusting Green NNP to Measure Sustainability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(3), pages 355-70, September.
    8. Bartelmus, Peter & Stahmer, Carsten & van Tongeren, Jan, 1991. "Integrated Environmental and Economic Accounting: Framework for a SNA Satellite System," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(2), pages 111-48, June.
    9. Martin L. Weitzman, 1998. "The Linearized Hamiltonian as Comprehensive NDP," Harvard Institute of Economic Research Working Papers 1845, Harvard - Institute of Economic Research.
    10. John M. Hartwick, 1990. "Natural Resources, National Accounting and Economic Depreciation," Working Papers 771, Queen's University, Department of Economics.
    11. Hartwick, John M, 1994. " National Wealth and Net National Product," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 253-56.
    12. Pezzey, J., 1992. "Sustainable Development Concepts; An Economic Analysis," Papers 2, World Bank - The World Bank Environment Paper.
    13. Harrison, Anne, 1989. "Environmental Issues and the SNA," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 35(4), pages 377-88, December.
    14. Usher, Dan, 1994. "Income and the Hamiltonian," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(2), pages 123-41, June.
    15. Heal, G., 1998. "Valuing the Future: Economic Theory and Sustainability," Papers 98-10, Columbia - Graduate School of Business.
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