Sustainabiity and the Measurement of Wealth
Kenneth J. Arrow
Stanford University - Department of Economics
University of Cambridge - Faculty of Economics and Politics; The Royal Swedish Academy of Sciences - Beijer International Institute of Ecological Economics
Lawrence H. Goulder
Stanford University - Department of Economics; National Bureau of Economic Research (NBER); Resources for the Future
Kevin J. Mumford
October 15, 2010
We develop a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining well-being over time. The framework focuses on whether a comprehensive measure of wealth – one that accounts for natural capital and human capital as well as reproducible capital – is maintained through time. Our framework also integrates population growth, technological change, and changes in health. We apply the framework to five countries that differ significantly in stages of development and resource bases: the United States, China, Brazil, India, and Venezuela. With the exception of Venezuela, significant increases in human capital enable comprehensive wealth to be maintained (and sustainability to be achieved) despite significant reductions in the natural resource base. We find that the value of “health capital” is very large relative to other forms of capital. As a result, its growth rate critically influences the growth rate of per-capita comprehensive wealth.
Keywords: Sustainable Development, Sustainability, Comprehensive Wealth, Wealth Accounting, Green Accounting
JEL Classification: Q32, Q39, O10, O47, O50, D69
Date posted: December 5, 2010
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