Growth, Pollution, and Money-Metric Welfare in Imperfect Markets
AbstractThis paper shows how utility based welfare measures in dynamic general equilibrium under imperfect markets can be transferred into a money metrics. In order to do this, we need to price forward looking components measured in units of utility. The typical comprehensive (green or inclusive) quasi-static welfare measure contains a core that looks like a comprehensive NNP component, as well as additional consumer surplus terms for both consumption goods and the externality. In addition, it contains a forward looking component with the discounted value of the marginal externality as the function to be integrated over time is also required. To accomplish this, we need a price index that is independent of the market basket, or to assume that the marginal utility of income is constant over time. With respect to local welfare measures it turns out that growth in traditional NNP will surprisingly work, provided that we condition on a positive average marginal rate of return of investment, and use an augmented genuine saving concept.
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Bibliographic InfoPaper provided by CERE - the Center for Environmental and Resource Economics in its series CERE Working Papers with number 2012:15.
Length: 20 pages
Date of creation: 28 Sep 2012
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Web page: http://www.cere.se
Welfare measurement; comprehensive NNP; imperfect markets; money metrics;
Find related papers by JEL classification:
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
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