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Available capital, utilized capital, and shadow prices in inclusive wealth accounting

Rintaro Yamaguchi

Ecological Economics, 2020, vol. 169, issue C

Abstract: Previously, accounting for comprehensive or inclusive wealth has focused on the supply side of capital assets. However, human well-being created by capital assets inherently depends on the demand side as well. In particular, if capital is not utilized at its full capacity, then realized or actual human well-being may be less affected by available capital than by effective or utilized capital. In principle, this notion is embodied in a shadow price, which is defined as the marginal contribution of capital assets to social well-being. The shadow price becomes higher if the underlying resource allocation mechanism improves. In practice, one can account for such underutilization by adjusting shadow prices to reflect only the utilized quantity of the capital in question. Furthermore, capital utilization has different, nuanced implications for produced, human, and natural capital, and its implications even vary across some classes of natural capital. Within this line of theoretical thought, we provide empirical estimates of the changes in inclusive wealth and sustainability of selected developing countries in recent years by comparing available and utilized capital assets. We find that sustainability assessments may be revised based on utilized capital, due to, among others, human capital underemployment and non-renewable natural capital accessibility.

Keywords: Genuine savings; Inclusive wealth; Unemployment; Shadow prices; Capital utilization; Capacity utilization; Capability approach; Sustainable development; Carbon budget (search for similar items in EconPapers)
JEL-codes: E01 E21 M41 Q56 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ecolecon.2019.106525

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