WELFARE ECONOMICS AND THE MEASUREMENT OF NNP*

J. Thomas Romans

Review of Income and Wealth, 1977, vol. 23, issue 3, 279-290

Abstract: Some relationships between NNP and economic welfare are explored in the confines of a simple, static welfare maximization model. Various assumptions concerning both the measurement of NNP and the economic system underlying this model are dropped seriatem and the implications for the correspondence between NNP and economic welfare are examined. The following conclusions emerge. There are several classes of resource reorganization in which NNP and welfare move in the same direction, so that NNP can serve as an ordinal proxy for welfare. These include changes in taxes or competitive imperfections which result in product substitution and movements along the transformation function. With a general qualification, NNP‐welfare correspondence is preserved for allocative changes which affect the real costs and prices of goods included in NNP or of non‐included goods in inelastic demand; changes in involuntary unemployment; and changes in technological externalities affecting producers. There are other cases where changes in NNP and welfare are not positively correlated. Included here are changes in real costs of non‐included goods for which demand is elastic and changes in technological externalities imposed on consumers.

Date: 1977
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