Welfare Measurement in Imperfect Markets

Welfare Measurement in Imperfect Markets

A Growth Theoretical Approach

New Horizons in Environmental Economics series

Thomas Aronsson, Karl-Gustaf Löfgren and Kenneth Backlund

This book cleverly integrates the research on welfare measurement and social accounting in imperfect market economies. In their previously acclaimed volume, Welfare Measurement, Sustainability and Green National Accounting, the authors focused on the external effects associated with environmental damage and analysed their role in the context of social accounting. This book adopts a much broader perspective by analysing a wide spectrum of resource allocation problems of real-world market economies.

Chapter 4: An Almost Practical Step Towards Green Accounting?

Thomas Aronsson, Karl-Gustaf Löfgren and Kenneth Backlund

Subjects: economics and finance, environmental economics, valuation, environment, environmental economics, valuation


The valuation problems implicit in green accounting are, to a large extent, related to environmental externalities. As explained in Chapter 2, if it were possible to design and implement Pigouvian taxes such that the external effects would become fully internalized, these taxes might also be used to value the depletion of environmental capital. In practice, however, little consensus has yet been reached regarding methods to measure the future welfare consequences of using environmental resources. Some of the early literature on social accounting1 suggested using the willingness-to-pay technique as a means of collecting information. This is clearly a challenging topic for social accounting in the sense that the willingness-to-pay technique is widely used in economics to capture the values of non-market goods. To our knowledge, the only attempt to reconcile the willingness-to-pay approach to collecting information with the growth theoretical approach to social accounting is Aronsson and Löfgren (1999a). This chapter is largely based on their analysis. The Pigouvian emission tax plays two important roles in the context of Chapter 2: it brings the economy to the socially optimal path, and it provides useful information for accounting purposes by measuring the social opportunity cost of emissions. However, since Pigouvian taxes are generally forward looking, their informational content is not easily recovered in practice. The main reason is that Pigouvian taxes, in part, reflect the preferences of future generations, whereas willingness-to-pay studies, by necessity, have to focus on the preferences of those currently alive. What would happen if we tried...

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