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Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

  • Kenneth Arrow

    (Research Initiative on the Environment, the Economy, and Sustainable Welfare, Stanford University, Stanford)

  • Partha Dasgupta

    (Faculty of Economics of Cambridge and St. John’s College, Cambridge)

  • Karl-Göran Mäler

    (Beijer International Institute of Ecological Economics, Stockholm)

We are interested in three related questions: (1) How should accounting prices be estimated? (2) How should we evaluate policy change in an imperfect economy? (3) How can we check whether intergenerational well-being will be sustained along a projected economic programme? We do not presume that the economy is convex, nor do we assume that the government optimizes on behalf of its citizens. We show that the same set of accounting prices should be used both for policy evaluation and for assessing whether or not intergenerational welfare along a given economic path will be sustained. We also show that a comprehensive measure of wealth, computed in terms of the accounting prices, can be used as an index for problems (2) and (3) above. The remainder of the paper is concerned with rules for estimating the accounting prices of several specific environmental natural resources, transacted in a few well known economic institutions.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.109.

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Date of creation: Dec 2003
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Handle: RePEc:fem:femwpa:2003.109
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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. Skiba, A K, 1978. "Optimal Growth with a Convex-Concave Production Function," Econometrica, Econometric Society, vol. 46(3), pages 527-39, May.
  3. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 135-204.
  4. Pearce, David & Hamilton, Kirk & Atkinson, Giles, 1996. "Measuring sustainable development: progress on indicators," Environment and Development Economics, Cambridge University Press, vol. 1(01), pages 85-101, February.
  5. Kenneth J. Arrow & Partha Dasgupta & Karl-Göran Mäler, 2003. "The genuine savings criterion and the value of population," Economic Theory, Springer, vol. 21(2), pages 217-225, 03.
  6. Hahn, F H, 1970. "Savings and Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 37(1), pages 21-24, January.
  7. Dasgupta, Partha & M Ler, Karl-G Ran, 2000. "Net national product, wealth, and social well-being," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 69-93, February.
  8. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882, March.
  9. Thomas Aronsson & Karl-Gustaf Löfgren, 1998. "Green Accounting in Imperfect Market Economies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 273-287, April.
  10. John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
  11. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
  12. Levhari, David & Srinivasan, T N, 1969. "Optimal Savings under Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 153-63, April.
  13. Cairns, Robert D., 2002. "Green accounting using imperfect, current prices," Environment and Development Economics, Cambridge University Press, vol. 7(02), pages 207-214, May.
  14. Vincent, Jeffrey R. & Panayotou, Theodore & Hartwick, John M., 1997. "Resource Depletion and Sustainability in Small Open Economies," Journal of Environmental Economics and Management, Elsevier, vol. 33(3), pages 274-286, July.
  15. D. Gale Johnson, 2001. "On Population and Resources: A Comment," Population and Development Review, The Population Council, Inc., vol. 27(4), pages 739-747.
  16. repec:cup:cbooks:9780521297615 is not listed on IDEAS
  17. R. M. Solow, 1973. "Intergenerational Equity and Exhaustable Resources," Working papers 103, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. 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.
  19. Dasgupta, Partha, 2001. "Valuing Objects and Evaluating Policies in Imperfect Economies," Economic Journal, Royal Economic Society, vol. 111(471), pages C1-29, May.
  20. Asheim, Geir B., 1996. "Capital gains and net national product in open economies," Journal of Public Economics, Elsevier, vol. 59(3), pages 419-434, March.
  21. Hamilton, Kirk & Clemens, Michael, 1999. "Genuine Savings Rates in Developing Countries," World Bank Economic Review, World Bank Group, vol. 13(2), pages 333-56, May.
  22. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-65, September.
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