POLLUTION AND POLLUTION ABATEMENT IN THE NATIONAL ACCOUNTS

Kirk Hamilton

Review of Income and Wealth, 1996, vol. 42, issue 1, 13-33

Abstract: Building on the approach of Weitzman, as extended by Hartwick and Mäler, five models of national accounts in a dynamic competitive economy with pollution externalities are constructed: flow pollutants, stock pollutants, fossil fuels and CO2, living resources and acid rain, and household defensive expenditures. The results measure welfare rather than national product per se. The general conclusions are that abatement expenditures should be treated as intermediate consumption, that adjustments need to be made for both pollution emissions and natural pollution dissipation processes, that marginal social costs should be used to value emissions, and that the level of environmental services must be valued in measuring welfare. Not only should household defensive expenditures not be subtracted from the welfare measure, under plausible assumptions the adjustment to welfare (as opposed to NNP) includes a value greater than the level of household defensive expenditure.

Date: 1996
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