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
4HEWATERISANENVIRONMENTALASSETTHATOFFERSSERVICESTOHUMANSANDOTHERSPE CIESINTHISCASETHEABSORPTIONOFPOLLUTION3OMELOWER QUANTITYOFPOLLUTION COULDBEDISCHARGEDINTOTHEESTUARYWITHOUTHARMINGTHElSHORMAKINGITUNSAFE TOSWIM4HECHEMICALPLANTISUSINGTHATDISPOSALSERVICEWITHOUTHAVINGTOPAY FORIT)FITDIDNOTHAVETHEOPTIONOFRELYINGONTHEESTUARYFORDISPOSALSERVICES ITWOULDHAVETOMANAGEITSWASTESINSOMEOTHERWAY4HATWASTEMANAGEMENT WOULDIMPOSElNANCIALCOSTSTHATWOULDBEDEDUCTEDFROMITSREVENUESINORDER TOESTIMATEVALUEADDED(ENCEVALUEADDEDANDTHEMACROECONOMICMEASURES BASEDONITAREHIGHERTHANTHEYWOULDBEIFlRMSCOULDNOTUSETHENONMARKETED WASTEDISPOSALSERVICESOFTHEENVIRONMENT 4HEDEGRADATIONOFTHEENVIRONMENTTHUSAFFECTSBOTHGROSSINCOMEANDASSET
VALUE%ACHOFTHESECANBEVALUEDSEPARATELYANDINCORPORATEDINTHEACCOUNTS $EPLETIONINCONTRASTHASNOEFFECTONGROSSINCOMEUNTILTHESTOCKISUSEDUP "EFORETHENITHASANIMPACTONTHEVALUEOFTHEASSETTHROUGHTHELOSSOFFUTURE REVENUEANDONNETINCOMEONCETHEDEPLETIONISACCOUNTEDFORINDEPRECIATION 4HEURBANAIRPOLLUTIONEXAMPLEISSOMEWHATDIFFERENT4HEHARMHEREISNOTTO
ANATURALRESOURCESUCHASAFORESTESTUARYORlSHERYBUTTOHUMANHEALTH0ARTOF THECOSTISADIRECTLOSSOFINCOMETHEWAGESOFTHEADULTSWHOMISSWORKBECAUSE OFILLNESS!NOTHERPARTOFTHECOSTISTHEMEDICALEXPENSESTHEYINCURBECAUSEOF RESPIRATORYPROBLEMS"OTHOFTHESECLEARLYCANBEINTERPRETEDININCOMETERMS 4HISCOULDBECONVERTEDTOADECREASEINTHEVALUEOFANASSETBUTONLYBYACCEPT INGTHENOTIONTHATAVALUECANBEPLACEDONTHEHUMANCAPITALOF THEPEOPLE HARMEDANDTHATTHEVALUEISTHENDEPRECIATEDBECAUSEOFILLNESS&OLLOWINGTHIS LOGICTHESCHOOLDAYSMISSEDBYSICKCHILDRENIFALOTOFDAYSAREMISSED COULDBE INTERPRETEDASADECREASEININVESTMENTINHUMANCAPITALDEVELOPMENTBECAUSE THEYCOULDREDUCETHECHILDRENSABILITYTOEARNINCOMEINTHEFUTURE4HEINCOME COMPONENTOFTHECHILDRENSSICKNESSMIGHTBETHEIR LOSSOFWELFAREASARESULT OFBEINGSICKTHISWOULDNOTBETHEINCOMEEQUIVALENTOFTHEFORGONEEARNINGS HOWEVER !NOTHERWAYTOINTERPRETTHEAIRPOLLUTIONEXAMPLEWOULDBETOTREATTHEAIRITSELF
ASANASSETWHOSEVALUEDECREASESIFITISDEGRADED$EVELOPINGAVALUEFORTHEAIR WOULDBEDIFlCULTBECAUSEITISNEVERDIRECTLYSOLD)NEFFECTTHECOSTSIMPOSEDBY DEGRADEDAIRˆMEDICALCOSTSFORGONEINCOMEˆWOULDHAVETOBEUSEDASAPROXY WITHWHICHTOATTEMPTTOVALUETHECHANGEINAIRQUALITYWITHOUTACTUALLYVALUING
CONCEPTUALLYDIFFERENTFROMFOCUSINGONTHECOSTSIMPOSEDBYITSDEGRADATIONIN PRACTICEITMIGHTCOMETOTHESAMETHING
4HEREVISED3%%!lNDSWAYSTOINCORPORATESOMEBUTNOTALLOFTHESEIMPACTSIN ADJUSTEDMACROECONOMICMEASURES4HEDEDUCTIONOFRESOURCEDEPLETIONTODERIVE NETINCOMEORAMEASUREOFSUSTAINABLEINCOMEHASRECEIVEDAGREATDEALOFATTEN TION$EBATEINTHISAREAFOCUSESONTWOQUESTIONSWHICHASSETSTOTRACKANDWHICH CHANGESINTHEIRVALUESHOULDBEDEDUCTED 4HECONVENTIONAL3.!ALREADYTRACKSMANUFACTUREDASSETSANDPRODUCEDNATU
RALASSETSSUCHASCROPSANDPLANTATIONFORESTS)TSUBTRACTSCHANGESINTHEIRVALUEAS ARESULTOFHUMANACTIVITYCONSUMPTIONOFlXEDCAPITAL FROM'$0TODERIVE'.0 )TDOESNOTSUBTRACTCHANGESTHATOCCURFOROTHERREASONSHOWEVERSUCHASmUCTUA TIONINWORLDPRICESORNATURALDISASTERS 3OMECRITICSOFTHEACCOUNTSPOINTOUTTHATTOMEASUREINCOMECORRECTLYTHE
ACCOUNTSSHOULDSUBTRACTCHANGESINTHEVALUEOFALLASSETS4HISCOULDINCLUDESEV ERALTYPESOFASSETSNOTCOVEREDBYTHE3.!NONPRODUCEDNATURALASSETSHUMAN CAPITALANDINSTITUTIONALCAPITAL(UMANCAPITALREFERSTOTHESKILLSANDKNOWLEDGE THATACCUMULATEINPEOPLETHROUGHEDUCATIONANDEXPERIENCE)NSTITUTIONALCAPI TALREFERSTOSOCIALSYSTEMSTHATHELPTHEECONOMYANDTHESOCIETYRUNSMOOTHLY SUCHASEFFECTIVEGOVERNMENTANDTHERULEOFLAW(UMANCAPITALANDINSTITUTIONAL CAPITALAREDIFlCULTTODElNEMOREPRECISELYANDTOMEASURESOINTHEENVIRONMEN TALACCOUNTSATTENTIONHASFOCUSEDLARGELYONNATURALASSETS4HISBOOKALSOGIVES MOREATTENTIONTONATURALASSETSBECAUSEITISABOUTENVIRONMENTALACCOUNTINGNOT HUMANORINSTITUTIONALACCOUNTING %CONOMISTSALSOARGUETHATINORDERTOMEASURESUSTAINABLEINCOMECORRECTLYALL
CHANGESINTHEVALUEOFASSETSSHOULDBEDEDUCTEDRATHERTHANONLYTHOSEATTRIB UTABLETOHUMANACTIVITY)NECONOMICSDEPRECIATIONREFERSTOANYCHANGEINTHE VALUEOFASSETSIRRESPECTIVEOFITSSOURCEWHEREASCONSUMPTIONOFlXEDCAPITAL INCLUDESONLYTHOSECHANGESINVALUEDUETOHUMANPRODUCTIVEACTIVITY4HEDIFFER ENCEBETWEENTHESETWOCONCEPTSISKEYTOCONVERTING3.!MACROECONOMICINDICA TORSFROMMEASURESOFOUTPUTTOMEASURESOFSUSTAINABLEINCOME
4HE3%%!ANDPARTICULARLYTHE.AIROBI'ROUPMANUALWHICHPROVIDEDCLEARER GUIDANCEONIMPLEMENTATIONOFTHESYSTEM5.AND5.%0 CALLEDFORCALCULA TIONOFANENVIRONMENTALLYADJUSTEDINDICATORDERIVEDBYSUBTRACTINGTHEDEPLETION OFNATURALASSETSFROMCONVENTIONALNETNATIONALPRODUCT4HERESULTINGMEASURE ISTERMEDENVIRONMENTALLYADJUSTEDDOMESTICPRODUCT)%$0 ) 4HEADJUSTMENTS MADETOCALCULATE%$0 )INCLUDETHEDEPLETIONOFNATURALRESOURCESDUETOOVER USEBUTTHEYDONOTINCLUDECHANGESINTHEVALUEOFRESOURCESFORANYOTHERREASON 4HUSTHEYDONOTINCORPORATETHEECONOMICCONCEPTOFDEPRECIATIONBUTCONTINUE TORETAINTHEVALUETHATISCONSISTENTWITHTHECONVENTIONALACCOUNTS4HEYALSODO NOTCALLFORDEDUCTIONOFTHECHANGEINASSETVALUESASARESULTOFDEGRADATION
CULATIONOFSO CALLED%$0 ))WHICHSUBTRACTEDAMEASUREOFTHEDEGRADATIONOF THEENVIRONMENTDUETOECONOMICACTIVITYFROM%$0 )!SDISCUSSEDIN#HAPTER THE3%%!CONSIDERSTWOGENERALAPPROACHESTOMEASURINGDEGRADATIONONEBASED ONTHECOSTSOFPREVENTINGITANDTHEOTHERBASEDONTHECOSTSITIMPOSES4HElRST APPROACHTERMEDTHEMAINTENANCECOSTAPPROACHESTIMATESTHETOTALEXPENDITURE THATWOULDHAVEBEENREQUIREDINORDERTOKEEPTHEENVIRONMENTINTHESAMESTATE ATTHEENDOFTHEYEARASATTHESTART4HISMEANSNOTONLYPREVENTINGADDITIONALPOL LUTIONBUTALSOMAKINGUPFORCUMULATIVEDAMAGETHATWOULDHAVEOCCURREDTHIS YEARASARESULTOFPOLLUTIONALREADYSTOREDINTHEENVIRONMENTFROMPREVIOUSYEARS &OREXAMPLEPOLLUTIONTHATOCCURREDINTHEPASTMAYSLOWLYDEGRADEWATERBODIES ANDLEADTOSPECIESDECLINEINTHISYEARTHISWOULDHAVETOBEPREVENTEDBYRESTORA TIONEXPENDITURESINTHECURRENTYEAR 4HESECONDAPPROACHESTIMATESNOTTHECOSTOFPREVENTINGENVIRONMENTALDEG
RADATIONBUTTHEDAMAGEIMPOSEDBYTHATDEGRADATION&ORNATURALRESOURCESTHIS WOULDBEMEASUREDASTHECHANGEINTHEVALUEOFASSETSATTRIBUTABLETOENVIRON MENTALHARMASINTHEFORESTANDESTUARYEXAMPLESABOVE&ORPOLLUTIONITISMEA SUREDINTERMSOFTHEHARMCAUSEDBYTHEPOLLUTIONTOHUMANHEALTHBUILDINGS ANDSOON"ECAUSETHESEAREMARKETEDECONOMICCOSTSTHEYAREALREADYCAPTURED INTHEACCOUNTSANDNEEDONLYBEDISAGGREGATEDRATHERTHANADDEDTOORSUBTRACTED FROMTHEACCOUNTS4HEENVIRONMENTALLYADJUSTEDINDICATORSOFTHE3%%!CAN BESUMMARIZEDASFOLLOWS
NETDOMESTICPRODUCT LESS DEPLETIONOFNATURALRESOURCESDUETOOVERUSE EQUALS ENVIRONMENTALLYADJUSTED.$0%$0 ) LESS DEGRADATIONOFENVIRONMENTDUETOECONOMICACTIVITYMEASURED
BASEDONEITHERCOSTOFPREVENTINGHARMMAINTENANCECOST OR COSTIMPOSEDBYHARM
EQUALS ENVIRONMENTALLYADJUSTED.$0%$0 ))
4HE3%%!DISCUSSESALLOFTHESEMEASURESOFMAINTENANCECOSTANDDEG RADATIONANDSUGGESTSTHATREADERSAPPLYTHEONEMOSTSUITEDTOTHEIRANALYTICAL PURPOSES3INCETHENHOWEVERENVIRONMENTALACCOUNTANTSHAVEBECOMEQUITE UNCOMFORTABLEWITHTHISAPPROACH!SDISCUSSEDIN#HAPTERMAINTENANCECOSTIS NOTAREALISTICESTIMATEOFTHEACTUALIMPACTONTHEECONOMYOFASTRICTERAPPROACH TOENVIRONMENTALPROTECTION-OREOVERTHEREISNONECESSARYREASONWHYMAIN TENANCECOSTSHOULDBETHESAMEASTHEHARMCAUSEDBYDEGRADATIONSOTHETWO ALTERNATEMETHODSWOULDNOTLEADTOCALCULATIONOFTHESAMEVALUEOFGREEN'$0
#ONSEQUENTLYTHEREVISED3%%!TAKESASOMEWHATDIFFERENTAPPROACH7HILEREC OGNIZING THAT SOME NATIONAL INCOME ACCOUNTANTS OPPOSE CALCULATION OF ANY ADJUSTEDINDICATORSITSUGGESTSTHREEDIFFERENTAPPROACHESTHATMIGHTBEADOPTED 4HElRSTISANADJUSTED.$0lGURETHATTAKESINTOACCOUNTTHREEDIFFERENTSOURCES OFCHANGEINASSETVALUEDEGRADATIONOFNATURALCAPITALDEPLETIONOFNATURALCAPI TALANDDECREASESINHUMANCAPITALASARESULTOFENVIRONMENTALHEALTHPROBLEMS
UNDERSTOODASACRUDEAPPROXIMATIONOF(ICKSIANINCOME4HECALCULATIONOFTHIS MEASUREISASFOLLOWS
CONVENTIONAL'$0 LESS CONSUMPTIONOFlXEDCAPITAL#&# ASINTHECONVENTIONALACCOUNTS EQUALS CONVENTIONAL.$0DIFFERSFROM..)TOTHEEXTENTTHATITINCLUDES
INCOMEmOWSTOANDFROMTHE2/7 LESS DEPLETIONOFNATURALRESOURCES LESS DECREASEDVALUEOFASSETSASARESULTOFDEGRADATION EQUALS DEPLETION ADJUSTEDNETDOMESTICPRODUCTDP.$0 ORDEPLETION
ADJUSTEDNATIONALINCOMEDP.) LESS POLLUTIONDAMAGETOHEALTHVALUEDASACHANGEINASSETVALUE EQUALS DAMAGE ADJUSTEDNETNATIONALINCOMEDA..)
!SDISCUSSEDINTHEEARLIERSECTIONTITLED!DJUSTMENTSFOR$EPLETIONAND$EG RADATION4HE0ROBLEMSTHECOSTSOFENVIRONMENTALDEGRADATIONCANBEIDENTI FIEDEITHERTHROUGHTHEIR IMPACTONTHEVALUEOFASSETSORTHROUGHTHEIR IMPACT ONCURRENTINCOME4HEYMAYBEVALUEDTHROUGHTHEEXPENDITURESTHATWOULDBE REQUIREDTOPREVENTTHEMORTHROUGHTHEBURDENSTHATTHEYIMPOSEONTHOSEWHO AREHARMED4HEREVISED3%%!LINKSTHESETWODIFFERENTASPECTSOFENVIRONMENTAL COSTVALUATIONRATHERTHANVIEWINGTHEMASINDEPENDENT)TASSUMESTHATCHANGES INASSETVALUESHOULDBEESTIMATEDBASEDONTHEBURDENIMPOSEDBYDEGRADATION WHEREAS INCOMECHANGESSHOULDBEESTIMATEDBASEDONTHECOSTOFPREVENTING HARM!SSHOWNABOVEDAMAGE ADJUSTEDNETNATIONALINCOMETAKESTHEFORMER APPROACHDEDUCTINGTHEDECREASEINASSETVALUEASARESULTOFENVIRONMENTALDEGRA DATIONFROMCONVENTIONAL'$0 4HE SECOND ENVIRONMENTALLY ADJUSTED INCOME MEASURE TAKES THE LATTER
APPROACHESTIMATINGTHECOSTSOFPREVENTINGORADJUSTINGTOENVIRONMENTALHARM ANDSUBTRACTINGTHOSECOSTSFROM.$0)TBUILDSONTHE%$0CALCULATIONSOF6ERSION )6OFTHE3%%!DISCUSSEDIN#HAPTERBUTITEXPLORESFURTHERTHEDIFFERENCES AMONGTHEVARIOUSCOSTSOFPREVENTINGHARMMITIGATINGITRESTORINGTHEENVIRON MENTANDSOON4HECALCULATIONSLEADTOMEASURESOFENVIRONMENTALLYADJUSTED GROSSANDNETDOMESTICPRODUCTLABELEDEA'$0ANDEA.$0 !STHEREVISED3%%!POINTSOUTHOWEVERTHESEMEASURESSUFFERFROMTHESAME
SHORTCOMINGSAS%$0 ))4HEYDONOTTAKEINTOACCOUNTTHEADJUSTMENTSTHATTHE ECONOMYWOULDMAKEIFENVIRONMENTALPROTECTIONMEASURESWEREACTUALLYIMPLE MENTED4HEREFORETHEYARENOTMEASURESOFHOWTHEECONOMYWOULDACTUALLYLOOK UNDERGREENECONOMICPOLICIESTOTALINCOMEUNDERAMOREREALISTICMODELWOULD BECONSIDERABLYHIGHERTHANTHESEMEASURESSUGGEST.ORDOTHEYPROVIDEANESTI MATEOFSUSTAINABLEINCOMEINTHE(ICKSIANSENSE#ONSEQUENTLYTHE3%%!DOES NOTRECOMMENDTHATCOUNTRIESCALCULATEEA'$0OREA.$0EXCEPTPERHAPSASA CRUDEPROXYFORTHEMAXIMUMECONOMICIMPACTTHATMIGHTRESULTFROMPROPOSED POLICIES 'IVENTHELIMITATIONSOFTHESEACCOUNTINGAPPROACHESTHE3%%!GOESONTOCON
SIDERTECHNIQUESFORMODELINGHOWTHEECONOMYWOULDCHANGEIFTIGHTERENVIRON MENTALCONTROLSWEREINPLACECALLINGTHIShGREENED ECONOMYMODELINGv&ROMA POLICYPERSPECTIVETHISISOFTENCONSIDERABLYMOREUSEFULTHANSIMPLEACCOUNT
ACCOUNTSASEXPLAINEDINTHEDISCUSSIONOFENVIRONMENTALPOLICYMODELSIN#HAP TER4HEYARENOTACCOUNTINGSYSTEMSINTHEMSELVESHOWEVERBUTARETHEOUT COMESOFECONOMICRESEARCHANDANALYSIS4HESEAREDISCUSSEDLATERINTHISCHAPTER INTHESECTIONON-ODEL "ASED!PPROACHESTO-EASURING)NCOME
4HEEARLIEREXAMPLESOFNONMARKETEDSERVICESPROVIDEDBYTHEENVIRONMENTˆlNAL CONSUMPTIONOF FOREST RECREATIONANDSWIMMINGAND INTERMEDIATECONSUMP TIONOFWASTEABSORPTIONCAPACITYˆARENOTPARTOFTHECONVENTIONAL3.!WHICHIS DESIGNEDTOMEASUREONLYMARKETEDGOODSANDSERVICESPRODUCEDBYHUMANECO NOMICACTIVITY4HEYHAVENOTEVENBEENCONSIDEREDFORINCLUSIONINTHE3.!4HE 3.!DOESINCLUDEAFEWNONMARKETEDGOODSNOTABLYFOODPRODUCEDONANDCON SUMEDBYFARMSKNOWNAShFOODPRODUCEDFOROWNCONSUMPTIONv ANDINSOME COUNTRIESGATHEREDFUELWOOD)TALSOESTIMATESRENTONOWNER OCCUPIEDHOMESAND IMPUTESITASINCOMETHATHOMEOWNERSPAYTOTHEMSELVES4WOOTHERNONMARKETED SERVICESUNPAIDHOUSEHOLDLABORANDLEISURETIMEHAVERECEIVEDCONSIDERABLEDIS CUSSIONBUTARENOTINCLUDEDINTHEACCOUNTS %CONOMISTSANDENVIRONMENTALISTSHAVEDEVOTEDMUCHTHOUGHTANDPAPERTO
HOWTOCLASSIFYANDVALUESERVICESSUCHASTHESE)NTHEFRAMEWORKTHEYHAVEDEVEL OPEDTHETOTALVALUEOFTHEENVIRONMENT4%6FORTOTALECONOMICVALUE ISMADEUP OFUSEVALUESANDNONUSEVALUES5SEVALUESINCLUDEDIRECTUSEOFMARKETEDPROD UCTSSUCHASTIMBERANDOFNONMARKETEDPRODUCTSSUCHASGATHEREDFUELWOOD WATERANDSOIL4HEYALSOINCLUDESO CALLEDhINDIRECTUSESvOFTHEENVIRONMENTSUCH ASWASTEDISPOSALAMENITIESSUCHASRECREATIONORSCENICVISTASmOODPROTECTION ANDWATERlLTRATIONBYSUBMERGEDAQUATICVEGETATION4HEINDIRECTUSESGENERALLY ARENOTMARKETEDTHOUGHACCESSTOPARKSISANOTABLEEXCEPTION4HUS
4%6USEVALUENONUSEVALUEAND
USEVALUEDIRECTUSEVALUEINDIRECTUSEVALUE
.ONUSEVALUESOFTHEENVIRONMENTCAPTUREOURWILLINGNESSTOPAYSIMPLYTO KNOWTHATTHERESOURCEWILLCONTINUETOEXISTEVENTHOUGHWEDONOTEXPECTTOUSE ITˆOREVENSEEITˆATANYIDENTIlABLEPOINTINTHEFUTURE&OREXAMPLESOMEPEOPLE AREWILLINGTOPAYTOHELPENSURETHEEXISTENCEOFTHEROYAL"ENGALTIGERSOF3UNDER BANSIN"ANGLADESH4HISISTERMEDEXISTENCEVALUE!RELATEDFORMOFNONUSEVALUE ISTERMEDOPTIONVALUETHISWOULDBETHEAMOUNTWEMIGHTBEWILLINGTOPAYTO ENSURETHATWECOULDSEETHETIGERSATANUNDETERMINEDPOINTINTHEFUTURE3OME ECONOMISTSALSOIDENTIFYWHATTHEYCALLQUASI OPTIONVALUE4HISISTHEEXPECTATION THATTHEVALUEOFTHEOPTIONTOSEETHETIGERSWILLINCREASEOVERTIMEASTHEYBECOME MORESCARCE9ETANOTHERNONUSEVALUEISBEQUESTVALUETHEWILLINGNESSTOPAYTO ENSURETHATFUTUREGENERATIONSWILLBEABLETOSEETHETIGERS4HUS
NONUSEVALUE EXISTENCEVALUEOPTIONVALUEQUASI OPTIONVALUE BEQUESTVALUE
4%6 DIRECTUSEVALUEINDIRECTUSEVALUEEXISTENCEVALUE OPTIONVALUEQUASI OPTIONVALUEBEQUESTVALUE
-ANYENVIRONMENTALISTSSUPPORTTHEDEVELOPMENTOFENVIRONMENTALACCOUNTS WITHTHEEXPECTATIONTHATTHEYWILLCAPTUREALLOF4%6%CONOMISTSWORKINGONMEA SURESOFSUSTAINABLEINCOMEDONOTGIVETHISISSUEASMUCHDIRECTATTENTIONASDO ENVIRONMENTALISTSBUTTHEYTOOSOMETIMESIMPLICITLYASSUMETHATACCOUNTSON WHICHTHEYWILLDEPENDWILLCAPTUREALLSERVICESOFTHEENVIRONMENTRATHERTHAN ONLYMARKETEDONESEG6INCENT.ORDHAUSAND+OKKELENBERG )NTHISRESPECTPOTENTIALUSERSOFTHEACCOUNTSMAYBEDISAPPOINTEDINTHE3%%!
