ABSTRACT
POSED SEVERAL DISTINCTWAYS TOMODIFY THE CONVENTIONAL NATIONAL ACCOUNTING MEASURES
N DEDUCTTHEDEPLETIONOFNATURALRESOURCES N DEDUCTTHEVALUEOFASSETDEGRADATIONDUETOPOLLUTION N DEDUCTTHEVALUEOFOTHERHARMSCAUSEDBYPOLLUTION N INCORPORATETHEVALUEOFNONMARKETEDmOWSOFGOODSANDSERVICESDERIVEDFROM THEENVIRONMENTAND
N DEDUCTDEFENSIVEEXPENDITURES
!LTHOUGHTHElRSTFOURADJUSTMENTSLISTEDABOVEMAYAPPEARTOBEQUITEDISTINCT FROMEACHOTHERINFACTTHEYCANBELINKEDDEPENDINGONWHETHERTHEIMPACTSOF POLLUTIONOROTHERENVIRONMENTALDEGRADATIONAREINTERPRETEDASCHANGESINASSET STOCKSORASLOSSESOFINCOMEORWELFARE!COMPARISONOFSEVERALEXAMPLESSHOWS WHYTHISISSO#ONSIDERTHEFOLLOWINGSCENARIOS
RAINFALLSONTHEOVERHARVESTEDFORESTANDDEGRADESITREDUCINGITSYIELD
N !CIDRAINALSOFALLSONAPROTECTEDFORESTHARMINGTHETREESANDTHEECOSYSTEMOF WHICHTHEYAREAPART
N !LARGEESTUARYHASAmOURISHINGCOMMERCIALlSHERYASWELLASPUBLICBEACHES WHEREFAMILIESCOMETOSWIMONTHEWEEKENDS!CHEMICALPLANTISBUILTONTHE ESTUARY)TSEFmUENTREDUCESWATERQUALITY4HISHURTSTHElSHANDMAKESSWIM MINGUNSAFE
N 5RBANAIRPOLLUTIONFROMFACTORIESANDVEHICLESCAUSESRESPIRATORYDISEASES !DULTSMISSWORKANDCHILDRENMISSSCHOOLBECAUSEOFILLNESS
4HEOVERHARVESTEDFORESTISCLEARLYANEXAMPLEOFRESOURCEDEPLETIONDUETOHUMAN ACTIVITY4HEDEPLETIONISVALUEDBASEDONTHELOSSOFFUTUREINCOMEBECAUSESOME OFTHESTOCKHASBEENCONSUMED)NTHEPRESENTPERIODTHEREVENUEFROMTHEFOREST DOESNOTDROPINFACTITISHIGHERTHANACTUALSUSTAINABLEINCOMEBECAUSEPARTOF THATREVENUEISDUETOCONSUMPTIONOFTHEASSET 4HEDEGRADATIONOFTHEFORESTBYACIDRAINISALSOARESULTOFHUMANACTIVITY
5NLIKETHEDEPLETIONEXAMPLEHOWEVERTHISHARMTOTHEFORESTISNOTTHERESULTOF HUMANACTIVITYINTHEFORESTITISANEXTERNALITYOFHUMANACTIVITYELSEWHEREINTHE ECONOMYWHICHBYDElNITIONISNOTCAPTUREDINMARKETPRICES4HEFORESTOWNERS BEARTHECOSTSOFTHEDEPLETIONOFTHEIRASSETBUTTHEPOLLUTERSCAUSINGTHEACIDRAIN DONOTBEARTHECOSTSTHEYIMPOSE4HEECONOMICCOSTIMPOSEDBYDEGRADATIONHAS TWOCOMPONENTS/NEISTHELOSSINCURRENTINCOMEASTIMBERQUALITYORQUANTITY DECREASESASARESULTOFACIDRAIN"ECAUSEITISACOMMERCIALFORESTTHISDROPIN INCOMEISALREADYRECORDEDINTHEACCOUNTS4HESECONDISTHEDECREASEINTHEVALUE OFTHEFORESTASSETBECAUSEOFTHEDECREASEINITSFUTUREINCOME GENERATINGPOTEN TIAL"OTHOFTHESEAREINCOMELOSSESBUTTHEYAREACCOUNTEDFORINDIFFERENTWAYS 4HECURRENTLOSSSHOWSUPINTHECURRENTACCOUNTSWHEREASTHEFUTURELOSSSHOWS UPASADECREASEINTHEVALUEOFTHEASSETTODAY .OWCONSIDERAPROTECTEDFORESTHURTBYACIDRAIN4HAT FORESTPROVIDESREC
REATIONAESTHETICPLEASUREWILDLIFEHABITATANDANARRAYOFOTHERENVIRONMENTAL FUNCTIONSTHATPEOPLEENJOY)FTHEPARKHASNOENTRYFEESTHEPEOPLEWHOBENElT FROMTHEFORESTDONOTHAVETOPAYFORANYOFITSSERVICESDIRECTLY"ECAUSEITCAN NOTBEHARVESTEDTHEFORESTHASNOCOMMERCIALVALUEASASOURCEOFTIMBEROROTHER PRODUCTS)NTHISCASEECONOMICTECHNIQUESFORVALUINGENVIRONMENTALFUNCTIONS COULDBEUSEDTOESTIMATEWHATPEOPLEWOULDBEWILLINGTOPAYFORTHESERVICESOF THEFOREST!STHEFORESTISDEGRADEDITWILLBEUSEDLESSORPEOPLEUSINGITWILLNOT BEWILLINGTOPAYASMUCHFORTHEEXPERIENCEBECAUSEITWILLNOTBEASPLEASANT4HIS DECREASECOULDBEESTIMATEDTODERIVETHENONMARKETEDEQUIVALENTOFTHELOSTTIM BERREVENUEFROMDEGRADATIONOFTHECOMMERCIALFOREST4HEESTIMATEDVALUEOF THEmOWOFENVIRONMENTALFUNCTIONSOFTHEFORESTCOULDALSOBEPROJECTEDINTOTHE FUTURE4HENEWLOWERFUTUREmOWSCOULDTHENBEDISCOUNTEDBACKTOTHEPRESENTTO DERIVEANESTIMATEOFTHECHANGEINTHEVALUEOFTHEFORESTASSETASARESULTOFACID RAIN "ECAUSETHESERVICEmOWSARENOTSOLDINMARKETSTHEBENElTSTHEYOFFERTOTHEIR
USERSARENOTINCLUDEDINCONVENTIONALACCOUNTS#ONSEQUENTLYTHELOSSOFTHOSE BENElTSALSODOESNOTAPPEARINTHEACCOUNTSINTHEWAYTHATTHELOSSOFCOMMER CIALFORESTREVENUEDOESAPPEAR3IMILARLYTHEDECLINEINTHEVALUEOFTHEFORESTASSET
CIALVALUE 4HEESTUARYEXAMPLEISPARALLELTOTHEFORESTONESINSOMERESPECTS4HElSHERY
ISACOMMERCIALASSETTHATPROVIDESANINCOMESTREAMTOTHElSHERS4HEIRINCOME DROPSASARESULTOFPOLLUTIONANDTHEVALUEOFTHEASSETDECLINES%STIMATINGTHE ASSETVALUEOFACOMMERCIALlSHERYISHARDERTHANESTIMATINGTHEVALUEOFACOM MERCIALFORESTBECAUSETHElSHAREHARDERTOCOUNTBUTITSTILLCANBEDONE4HE FAMILIESWHOSWIMATTHEBEACHAREENJOYINGASERVICEOFTHEENVIRONMENTTHATTHEY DONOTHAVETOPAYFOR4HATSERVICEISNOTCAPTUREDINTHEACCOUNTSSOTHELOSSOF SWIMMINGOPPORTUNITIESALSOISNOTCAPTURED)NPRINCIPLEITWOULDBEPOSSIBLETO ESTIMATEASTOCKVALUEFORTHESWIMMINGFUNCTIONASITMIGHTBEPOSSIBLETOESTI MATEANASSETVALUEFORTHENONMARKETEDFORESTSERVICESANDTHENTOCALCULATETHE DECLINEINASSETVALUERESULTINGFROMTHEPOLLUTION )NADDITIONTOTHISPARALLELTHECHEMICALPLANTHARMSTHEQUALITYOFTHEWATER
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ANATURALRESOURCESUCHASAFORESTESTUARYORlSHERYBUTTOHUMANHEALTH0ARTOF THECOSTISADIRECTLOSSOFINCOMETHEWAGESOFTHEADULTSWHOMISSWORKBECAUSE OFILLNESS!NOTHERPARTOFTHECOSTISTHEMEDICALEXPENSESTHEYINCURBECAUSEOF RESPIRATORYPROBLEMS"OTHOFTHESECLEARLYCANBEINTERPRETEDININCOMETERMS 4HISCOULDBECONVERTEDTOADECREASEINTHEVALUEOFANASSETBUTONLYBYACCEPT INGTHENOTIONTHATAVALUECANBEPLACEDONTHEHUMANCAPITALOF THEPEOPLE HARMEDANDTHATTHEVALUEISTHENDEPRECIATEDBECAUSEOFILLNESS&OLLOWINGTHIS LOGICTHESCHOOLDAYSMISSEDBYSICKCHILDRENIFALOTOFDAYSAREMISSED COULDBE INTERPRETEDASADECREASEININVESTMENTINHUMANCAPITALDEVELOPMENTBECAUSE THEYCOULDREDUCETHECHILDRENSABILITYTOEARNINCOMEINTHEFUTURE4HEINCOME COMPONENTOFTHECHILDRENSSICKNESSMIGHTBETHEIR LOSSOFWELFAREASARESULT OFBEINGSICKTHISWOULDNOTBETHEINCOMEEQUIVALENTOFTHEFORGONEEARNINGS HOWEVER !NOTHERWAYTOINTERPRETTHEAIRPOLLUTIONEXAMPLEWOULDBETOTREATTHEAIRITSELF
ASANASSETWHOSEVALUEDECREASESIFITISDEGRADED$EVELOPINGAVALUEFORTHEAIR WOULDBEDIFlCULTBECAUSEITISNEVERDIRECTLYSOLD)NEFFECTTHECOSTSIMPOSEDBY DEGRADEDAIRˆMEDICALCOSTSFORGONEINCOMEˆWOULDHAVETOBEUSEDASAPROXY WITHWHICHTOATTEMPTTOVALUETHECHANGEINAIRQUALITYWITHOUTACTUALLYVALUING
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