Frontiers of Environmental Economics
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Frontiers of Environmental Economics

Edited by Henk Folmer, H. Landis Gabel, Shelby Gerking and Adam Rose

Top European and American scholars contribute to this cutting-edge volume on little-researched areas of environmental and resource economics. Topics include spatial economics, poverty and development, experimental economics, large-scale risk and its management, organizational economics, technological innovation and diffusion and many more.
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Chapter 1: Green accounting and green taxes in the global economy

Thomas Aronsson and Karl-Gustaf Löfgren


Thomas Aronsson and Karl-Gustaf Löfgren 1 INTRODUCTION The question of the proper design of the national accounts has been subject to extensive research during the last decade. One of the major issues here has been to design so-called green net national product (NNP) welfare measures by explicitly accounting for environmental damage and accumulation (decumulation) of environmental capital.1 The first-best valuation (or accounting) principles are well known from Weitzman (1976). It is also clear, from the studies by Aronsson and Löfgren (1993, 1995) and Aronsson, Johansson and Löfgren (1997), how the impact of externalities should be handled so as to measure welfare in the uncontrolled market economy. The valuation problems implicit in green accounting are, to a large extent, related to environmental externalities. However, since the main purpose of the previous studies has been to measure the national welfare level, the global nature of these externalities has frequently been neglected. This chapter extends the analysis of green accounting to a global economy, where pollution caused by production in one country affects the well-being of consumers in other countries. We shall, in particular, explore the relationship between, on the one hand, the appropriate national and global welfare measures and, on the other, the national and/or global policies used to improve the allocation of the resources. The analytical framework for studying global external effects is well known from previous work on, for example, international pollution control. Global external effects are routinely analysed in terms of Nash non-cooperative differential games in...

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