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Economic Theory for the Environment

Essays in Honour of Karl-Göran Mäler

Edited by Bengt Kriström, Partha Dasgupta and Karl-Gustaf Löfgren

Karl-Göran Mäler’s work has been a mainstay of the frontiers of environmental economics for more than three decades. This outstanding book, in his honour, assembles some of the best minds in the economics profession to confront and resolve many of the problems affecting the husbandry of our national environments.
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Chapter 4: A CGE Analysis of Sulfur Deposition and Sweden’s ‘Green’ Net National Product

Lars Bergman


4. A CGE analysis of sulfur deposition and Sweden’s ‘green’ net national product Lars Bergman* 1 INTRODUCTION Conventional measures of macroeconomic performance such as national income (NI) and net national product (NNP) do not take into account the impact on welfare of environmental pollution and the depletion of natural resources. For this reason it is often argued that these measures tend to overestimate significantly both the level of real income and the rate of economic growth. Thus, with proper adjustments for the deterioration of environmental quality and the depletion of natural resources, the rate of economic growth, it is claimed, would be considerably lower than actually indicated by the national accounts. Empirical support for this view is given by, for instance, Repetto et al. (1989) who, in a study of Indonesia found that the depletion of natural resources would call for a rather significant downward adjustment of the conventional measure of the national product. Further evidence on significant deviations between conventional and ‘green’ national accounts is given in the survey by Dasgupta et al. (1995). Generally speaking ‘greening’ of the conventional measure of NNP amounts to adding the consumption value of environmental quality and deducting the value of natural resource depletion. As the scaling of any measure of environmental quality tends to be somewhat arbitrary, the positive consumption value of environmental quality alternatively can take the form of a deduction of the value of environmental damage in relation to some exogenous environmental quality standard. Needless to say there are a...

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