On the Welfare Significance of Green Accounting as Taught by Parable

Abstract “Green NNP” is a national accounting concept that subtracts off from GNP not just depreciation of capital, but also depletion of environmental assets. For a time-autonomous technology, Green NNP has a rigorous welfare interpretation as an exact measure of the economy's future power to consume. The present paper extends the standard framework to cover the case of labor-augmenting technological progress. For this special case of time dependence, a powerful conceptual parable applies. It is “as if” the conclusion from a simple-minded welfare story told by the standard neoclassical one-sector growth model covers a far more general situation involving any number of different types of capital, any convex production possibilities set, and fully optimizing behavior. Implications and applications are discussed.

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