Handbook of Environmental Accounting
Show Less

Handbook of Environmental Accounting

Edited by Thomas Aronsson and Karl-Gustaf Löfgren

This concise Handbook examines welfare measurement problems in a dynamic economy, focusing on the welfare-economic foundations for social accounting.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 4: Dynamic Endogenous Risk and Social Accounting

Ram Ranjan and Jason F. Shogren


Ram Ranjan and Jason F. Shogren 1 INTRODUCTION Social accounting aims to better understand the true performance of an economy by including the depreciation of the entire stock of capital, including reproducible capital, human capital and natural capital (see for example, Weitzman, 1976, Peskin and Peskin, 1978, Aronsson et al., 1997). Shadow prices can be used as relative weights to construct an index to measure changes in the capital stock or the entire capital stock. In theory, this index can be used to judge better if unobservable social well-being tracks observable economic progress or regress over time. For the most part, however, social accounting models have focused on temporal issues within deterministic environments. Incorporating risk would add more complications, but in theory at least the cost of risk should be reflected in the shadow prices of the capital stock. That is, if one assumes risk is exogenous and beyond the control of the representative agent (for example, Dasgupta, 2009). But when faced with risk, private citizens are free to choose whether to invest resources to change our beliefs about good and bad states of nature. We invest in self-protection to reduce the chance of a bad event or self-insurance to reduce the severity of a bad event or both (see for example, Ehrlich and Becker, 1972). Both actions make the risk endogenous to people. Understanding how people decide to go privately for self-protection and self-insurance is crucial for efficient provision of social goods and accurate accounting of social welfare. This...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.