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Green Accounting, Air Pollution and Health

Human capital is an important component of economic growth. The article extends a theoretical model for comprehensive national accounting to the welfare effects of pollution on human capital. The model includes a production externality in the form of a flow of air pollutants that cause both direct disutility and indirect welfare effects by negatively affecting the productivity of labor. We show that defensive medical expenditures or healthcare costs allocated to mitigating the disutility of air pollution should not be deducted from conventional net national product (NNP), whereas the value of the percieved disutility of illness episodes caused by pollution should be subtracted from NNP. We derive a marginal cost-benefit rule for an optimal level of pollution given its negative health effects. The rule can be used for determining an optimal tax on harmful emissions. Finally, we outline a scheme for empirical comprehensive accounting and for estimation of an emissions tax.

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Paper provided by National Institute of Economic Research in its series Working Paper with number 82.

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Length: 32 pages
Date of creation: 14 May 2003
Date of revision:
Handle: RePEc:hhs:nierwp:0082
Note: This paper is published as: Huhtala,A. and E. Samakovlis (2007), "Flows of Air Pollution, Ill Health and Welfare", Environmental and Resource Economics, 37 (2)
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  1. Aaheim, Asbjorn & Nyborg, Karine, 1995. "On the Interpretation and Applicability of a "Green National Product."," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 41(1), pages 57-71, March.
  2. John Strauss & Duncan Thomas, 1998. "Health, Nutrition, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 766-817, June.
  3. John M. Hartwick, 1990. "Natural Resources, National Accounting and Economic Depreciation," Working Papers 771, Queen's University, Department of Economics.
  4. Solow, Robert M, 1986. " On the Intergenerational Allocation of Natural Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 141-49.
  5. Aronsson, Thomas & Lofgren, Karl-Gustaf, 1999. "Pollution tax design and 'Green' national accounting," European Economic Review, Elsevier, vol. 43(8), pages 1457-1474, August.
  6. Weitzman, Martin L., 2000. "The linearised Hamiltonian as comprehensive NDP," Environment and Development Economics, Cambridge University Press, vol. 5(01), pages 55-68, February.
  7. Peskin, Henry M & Peskin, Janice, 1978. "The Valuation of Nonmarket Activities in Income Accounting," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 24(1), pages 71-91, March.
  8. David E. Bloom & David Canning & Jaypee Sevilla, 2001. "The Effect of Health on Economic Growth: Theory and Evidence," NBER Working Papers 8587, National Bureau of Economic Research, Inc.
  9. Ahlroth, Sofia, 2000. "Correcting Net Domestic Product for Sulphur Dioxide and Nitrogen Oxide Emissions: Implementation of a Theoretical Model in Practice," Working Paper 73, National Institute of Economic Research.
  10. Williams, Roberton III, 2002. "Environmental Tax Interactions when Pollution Affects Health or Productivity," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 261-270, September.
  11. Hamilton, Kirk, 1996. "Pollution and Pollution Abatement in the National Accounts," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(1), pages 13-33, March.
  12. Ståle Navrud, 2001. "Valuing Health Impacts from Air Pollution in Europe," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 20(4), pages 305-329, December.
  13. Karl-Göran Mäler, 1991. "National accounts and environmental resources," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(1), pages 1-15, March.
  14. Ostro, Bart D., 1983. "The effects of air pollution on work loss and morbidity," Journal of Environmental Economics and Management, Elsevier, vol. 10(4), pages 371-382, December.
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