Note on the correction of national income for environmental losses

Abstract

One of the objections to using national income as an indicator of welfare is that it does not include environmental losses and losses of other resources. The study “New Scarcity and Economic Growth” (R. Hueting, 1974) developed the following train of thought with respect to a correction for these losses. The environment can be described as a collection of possible uses, environmental functions or simply functions. When use of a function is at the expense of another function, or threatens to be so in the future, the environment acquires an economic aspect: loss of function then occurs. Losses of function are costs. We thus have a problem of choice: which use gets priority and which has to be forgone? As information on the basis of which these choices can be made shadow prices for environmental functions have been sought. For this purpose it has been endeavoured to construct a supply and demand curve.

This contribution has also been published in Statistical Journal of the United Nations Economic Commission for Europe. VoL 7, no. 2, 1990, pp. 75–83. IOS Press.