Contingent Valuation, Sustainability and a Green National Income

Abstract

With the availability of techniques to value changes in the quality of the environment, proposals have recently been made to incorporate environmental values into a green or greened national income (Ahmad et al., 1989 and El Serafy, 1991) These ideas stem from the broader problem of what exactly should be the content of an indicator of welfare in society. At this moment it is Gross National Product (GNP) and Net National Product (NNP) which forms the basis of welfare in society, as computed from the world wide accepted system of national accounts. However, due to the unprecedented deterioration of the environment in the last three decades, the accompanying monetary costs of damages and the non-monetary costs of extinction of species, changes in land use and landscape, GNP may not reflect welfare exactly. As Solow (1992) states, if one of the components between GNP and NNP is made by depreciation of man-made capital, why not correcting for depreciation of natural capital? A second example is that in the current system (household) restoration costs due to pollution lead to a contribution to National Product, whereas it merely is a recovering of a previous welfare loss. A simple correction in the direction of a greened national income would thus be to deduct these costs from GNP or NNP.