Handbook of Sustainable Development
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Handbook of Sustainable Development

Second Edition

Edited by Giles Atkinson, Simon Dietz, Eric Neumayer and Matthew Agarwala

This timely and important Handbook takes stock of progress made in our understanding of what sustainable development actually is and how it can be measured and achieved.
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Chapter 2: Comprehensive wealth accounting and sustainable development

Kirk Hamilton and Esther Naikal


The main title of the seminal paper by Pearce and Atkinson (1993), ‘Capital theory and the measurement of sustainable development’, clearly signals what a large body of subsequent literature has established – there is an intimate link between wealth and sustainability. Moreover, Pearce and Atkinson correctly identify the nature of the link: it is the real change in wealth as measured by an adjusted measure of net saving (genuine saving), including the value of the depletion and degradation of the environment, which indicates whether an economy is on a sustainable path. Hamilton and Clemens (1999) and Pezzey (2004) show that a current measure of genuine saving which is negative implies that future utility is lower than current utility over some interval of time on the optimal development path of the economy. In short, negative genuine saving measures unsustainability. What is implicit in these papers is that the set of assets measured in genuine saving is comprehensive – there are no other assets which are inputs to production or well-being. The intuition behind this is clear. If the economy exhibits negative genuine saving but there is an unmeasured investment in a ‘missing’ asset – human capital or an exogenous improvement in the terms of trade, for example – then it is certainly conceivable that the unmeasured creation of real wealth is greater than the measured negative genuine saving.

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