"Green National Product": Good Intentions, Poor Device?

Abstract

Quite a few economists have recently suggested that net national product should be adjusted for the value of environmental damages. One of the aims of such corrections is to establish a national income measure which is closer to the Hicksian concept of income.

The purpose of this paper is to illuminate some of the difficulties one encounters when the correcting formulae derived from simple theoretical models are transferred to applied national accounting. In particular, the paper is concerned with the question of whether a corrected national income measure will actually provide relevant information for policy formation purposes.

It is shown that a "green national product" will be very difficult to interpret. In general, it may not give any indications of the necessity of imposing stronger environmental policy actions. Nor does it indicate the hypothetical state of the economy after a change in environmental efforts.