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Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

Kenneth Arrow, Partha Dasgupta and Karl-Göran Mäler

Environmental & Resource Economics, 2003, vol. 26, issue 4, 647-685

Abstract: We are interested in three related questions:(1) How should accounting prices be estimated?(2) How should we evaluate policy change in animperfect economy? (3) How can we check whetherintergenerational well-being will be sustainedalong a projected economic programme? We do notpresume that the economy is convex, nor do weassume that the government optimizes on behalfof its citizens. We show that the same set ofaccounting prices should be used both forpolicy evaluation and for assessing whether ornot intergenerational welfare along a giveneconomic path will be sustained. We also showthat a comprehensive measure of wealth,computed in terms of the accounting prices, canbe used as an index for problems (2) and (3)above. The remainder of the paper is concernedwith rules for estimating the accounting pricesof several specific environmental naturalresources, transacted in a few well knowneconomic institutions. Copyright Kluwer Academic Publishers 2003

Keywords: accounting prices; bifurcation points; cost-benefit analysis; environmental Kuznets curve; genuine investment; genuine wealth; hysteresis; intertemporal welfare; irreversibility; non-convexity; Pontryagin Principle; population growth; property rights; separatrix; social discount rate; structural stability; sustainable development; technological change; thresholds (search for similar items in EconPapers)
Date: 2003
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