Net National Product as an Indicator of Sustainability

Abstract

Net National Product (NNP) can potentially serve several objectives, among others to measure value added and to be an indicator of welfare. In the aftermath of the World Commission on Environment and Development, however, it also seems important to investigate whether the concept of NNP can serve as an indicator of sustainability. My point of departure, following Hicks (1946, Ch. 14), is therefore to require that NNP should measure what can be consumed in the present period without reducing future consumption possibilities' and, in line with this, to argue that the NNP should equal the maximum per capita consumption level that can be sustained. If sufficiently many facilitating assumptions are made, then a concept of NNP that serves as an exact indicator of sustainability can easily be constructed. For instance, for a closed economy with a constant population, a stationary technology, and with only one capital good, it follows that the present does not reduce future consumption possibilities if and only if it does not decrease the stock of the single capital good. Hence, under the assumption that the one capital good k is identical to the one consumption good x, NNP defined as y: =x + k, measures the maximal sustainable consumption at time t, because then x, _ y is equivalent to k,_ ?. The purpose of this note is to establish that with multiple capital goods, it is not in general possible to construct an exact indicator of sustainability on the