On the Choice of Metrics in Dynamic Welfare Analysis: Utility versus Money Measures
AbstractThis paper is concerned with the choice of metrics for social cost-benefit analysis and dynamic welfare comparisons. In a utility-theoretic framework, we show that there is always a money measure that can serve as a substitute for the maximized utility wealth. Thus, under the non-arbitrage course of discount rate, the choice between utility and money measures has no real effect on project evaluations. We also define a generalized comprehensive net national product measure with a consumer surplus term incorporated, which is completely consistent with the Weitzman foundation. It is shown that while a green (comprehensive) NNP growth simply reflects the income effect, the change in consumer surplus captures the welfare effect of relative price changes. We argue that the reason for green NNP to be a weak welfare indicator is not due to its choice of money metric per se but the ignorance of a consumer surplus term.
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Bibliographic InfoPaper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 590.
Length: 22 pages
Date of creation: 26 Aug 2002
Date of revision:
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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
More information through EDIRC
Dynamic cost-benefit analysis; green national accounting; utility versus money metrics; Weitzman´s theorem;
Find related papers by JEL classification:
- D60 - Microeconomics - - Welfare Economics - - - General
- D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
- Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
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