Wealth, Welfare and Sustainability

Wealth, Welfare and Sustainability

Advances in Measuring Sustainable Development

Kirk Hamilton and Giles Atkinson

This important book presents fresh thinking and new results on the measurement of sustainable development. Economic theory suggests that there should be a link between future wellbeing and current wealth. This book explores this linkage under a variety of headings: population growth, technological change, deforestation and natural resource trade. While the relevant theory is presented briefly, the chief emphasis is on empirical measurement of the change in real wealth: this measure of net or ‘genuine’ saving is a key indicator of sustainable development. The methodological and empirical work is bolstered by tests of the predictive power of genuine saving in explaining future consumption and economic growth. Just as importantly, the authors show that many resource-abundant countries would be considerably wealthier today had they managed to save and invest the profits from natural resource exploitation in the past.

Chapter 11: Summary and Conclusions

Kirk Hamilton and Giles Atkinson

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

Extract

This book has dealt with what has been one of the fundamental questions in the sustainability debate: how can governments, most of whom have made a commitment to achieving sustainable development, know whether they are in fact on a sustainable path? Or, to state the problem slightly differently, how can current indicators tell us about future welfare? The theory we have expounded gives an unequivocal answer to the second question: the present value of utility will be increasing or decreasing along an optimal development path if genuine saving is positive or negative. If genuine saving is negative at a point on the optimal path, then this path is not sustainable. The theory presented in this book concerns the properties of saving and the measurement of saving on the optimal development path for the economy. ‘Real world’ economies are not optimal, and often diverge substantially from optimality. Indeed, much of modern environmental and resource economics is premised on exactly this observation. Where does this leave the measurement of sustainability and future welfare? One solution is offered by Dasgupta and Mäler (2000) who show that net saving has the same basic properties on non-optimal development paths if accounting prices are defined appropriately. However, this approach requires a forecast of future utility in order to define the accounting prices, in which case current saving indicators are not required in order to determine whether the economy is on a sustainable path. The analysis and discussion in a number of chapters in...

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