Environmental and Resource Economics

, Volume 26, Issue 4, pp 647–685 | Cite as

Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

  • Kenneth J. Arrow
  • Partha Dasgupta
  • Karl-Göran Mäler


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.

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 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aronsson, T. and K.-G. Löfgren (1998), ‘Green Accounting in Imperfect Economies’, Environmental and Resource Economics 11, 273–287.CrossRefGoogle Scholar
  2. Arrow, K. J., P. Dasgupta and K.-G. Mäler (2003), ‘The Genuine Saving Criterion and the Value of Population’, Economic Theory 21, 217–225.CrossRefGoogle Scholar
  3. Arrow, K. J. and M. Kurz (1970), Public Investment, the Rate of Return and Optimal Fiscal Policy. Baltimore: Johns Hopkins University Press.Google Scholar
  4. Asheim, G. B. (1996), ‘Capital Gains and Net National Product in Open Economies’, Journal of Public Economics 59, 419–434.CrossRefGoogle Scholar
  5. Brock, W. and D. Starrett (2003), ‘Non-Convexities in Ecological Management Problems’, Environmental and Resource Economics, this issue.Google Scholar
  6. Cairns, R. D. (2002), ‘Green Accounting Using Imperfect, Current prices’, Environment and Development Economics 7, 207–214.CrossRefGoogle Scholar
  7. Carpenter, S. R., D. Ludwig and W. A. Brock (1999), ‘Management of Eutrophication for Lakes Subject to Potentially Irreversible Change’, Ecological Applications 9, 751–771.CrossRefGoogle Scholar
  8. Collins, S. and B. Bosworth (1996), ‘Economic Growth in East Asia: Accumulation versus Assimilation’, Brookings Papers on Economic Activity 2, 135–191.CrossRefGoogle Scholar
  9. Dasgupta, P. (1982), The Control of Resources. Cambridge, MA: Harvard University Press.Google Scholar
  10. Dasgupta, P. (1993), An Inquiry into Well-Being and Destitution. Oxford: Clarendon Press.Google Scholar
  11. Dasgupta, P. (2000), ‘Population, Resources, and Poverty: An Exploration of Reproductive and Environmental Externalities’, Population and Development Review 26(4), 643–689.CrossRefGoogle Scholar
  12. Dasgupta, P. (2001a), ‘Valuing Objects and Evaluating Policies in Imperfect Economies’, Economic Journal 111(Conference Issue), 1–29.CrossRefGoogle Scholar
  13. Dasgupta, P. (2001b), Human Well-Being and the Natural Environment. Oxford: Oxford University Press.Google Scholar
  14. Dasgupta, P. (2001c), ‘On Population and Resources: Reply’, Population and Development Review 26(4), 748–754.CrossRefGoogle Scholar
  15. Dasgupta, P. (2003), ‘World Poverty: Causes and Pathways’, in B. Pleskovic and N. H. Stern, eds., Annual Bank Conference on Development Economics 2003. Washington, DC: World Bank, forthcoming, 2004.Google Scholar
  16. Dasgupta, P. and G. Heal (1979), Economic Theory and Exhaustible Resources. Cambridge: Cambridge University Press.Google Scholar
  17. Dasgupta, P. and K.-G. Mäler (2000), ‘Net National Product, Wealth, and Social Well-Being’, Environment and Development Economics 5, 69–93.CrossRefGoogle Scholar
  18. Dasgupta, P., S. Marglin and A. Sen (1972), Guidelines for Project Evaluation. New York: United Nations.Google Scholar
  19. El Serafy, S. (1989), ‘The Proper Calculation of Income from Depletable Natural Resources’, in Y. Ahmad, S. El Serafy and E. Lutz, eds., Environmental Accounting for Sustainable Development. Washington, DC: World Bank.Google Scholar
  20. Hahn, F. H. (1970), ‘Savings and Uncertainty’, Review of Economic Studies 37, 21–24.CrossRefGoogle Scholar
  21. Hamilton, K. and M. Clemens (1999), ‘Genuine Savings Rates in Developing Countries’,World Bank Economic Review 13, 333–356.Google Scholar
  22. Harsanyi, J. C. (1955), ‘Cardinal Welfare, Individualistic Ethics and Interpersonal Comparisons of Utility’, Journal of Political Economy 63, 309–321.CrossRefGoogle Scholar
  23. Hartwick, J. (1977), ‘Intergenerational Equity and the Investing of Rents from Exhaustible Resources’, American Economic Review 66, 972–974.Google Scholar
  24. Hartwick, J. and A. Hageman (1993), ‘Economic Depreciation of Mineral Stocks and the Contribution of El Sarafy’, in E. Lutz, ed., Toward Improved Accounting for the Environment. Washington, DC: World Bank.Google Scholar
  25. Hicks, J. R. (1942), ‘Maintaining Capital Intact: A Further Suggestion’, Economica 9, 174–179.CrossRefGoogle Scholar
  26. IUCN (1980), The World Conservation Strategy: Living Resource Conservation for Sustainable Development. Geneva: International Union for the Conservation of Nature and Natural Resources.Google Scholar
  27. Johnson, D. Gale (2001), ‘On Population and Resources: A Comment’, Population and Development Review 27(4), 739–747.CrossRefGoogle Scholar
  28. Kurz, M. (1968), ‘Optimal Economic Growth and Wealth Effects’, International Economic Review 9, 348–357.CrossRefGoogle Scholar
  29. Levhari, D. and T. N. Srinivasan (1969), ‘Optimal Savings Under Uncertainty’, Review of Economic Studies 36, 153–163.CrossRefGoogle Scholar
  30. Lipset, S. M. (1959), ‘Some Social Requisites of Democracy: Economic Development and Political Legitimacy’, American Political Science Review 53, 69–105.CrossRefGoogle Scholar
  31. Little, I. M. D. and J. A. Mirrlees (1968), Manual of Industrial Project Analysis in Developing Countries: Social Cost Benefit Analysis. Paris: OECD.Google Scholar
  32. Little, I. M. D. and J. A. Mirrlees (1974), Project Appraisal and Planning for Developing Countries. London: Heinemann.Google Scholar
  33. Lutz, E., ed. (1993), Toward Improved Accounting for the Environment. Washington, DC: World Bank.Google Scholar
  34. McKelvey, R. (1980), ‘Common Property and the Conservation of Natural Resources’, in S. A. Levin, T. G. Hallam and L. J. Gross, eds., Applied Mathematical Ecology, 18: Biomathematics. Berlin: Springer Verlag.Google Scholar
  35. Murray, J. D. (1993), Mathematical Biology. Berlin: Springer-Verlag.CrossRefGoogle Scholar
  36. Nordhaus, W. D. and Z. Yang (1996), ‘A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies’, American Economic Review 86, 741–765.Google Scholar
  37. Pearce, D. and G. Atkinson (1993), ‘Capital Theory and the Measurement of Sustainable Development: An Indicator of Weak Sustainability’, Ecological Economics 8, 103–108.CrossRefGoogle Scholar
  38. Pearce, D., K. Hamilton and G. Atkinson (1996), ‘Measuring Sustainable Development: Progress on Indicators’, Environment and Development Economics 1, 85–101.CrossRefGoogle Scholar
  39. Pezzey, J. C. V. (1992), Sustainable Development Concepts: An Economic Analysis, World Bank Environment Paper No. 2. Washington, DC: World BankCrossRefGoogle Scholar
  40. Pezzey, J. C. V. and M. A. Toman (2002), ‘Progress and Problems in the Economics of Sustainability’, in T. Tietenberg and H. Folmer, eds., The International Yearbook of Environmental and Resource Economics 2002/2003. Cheltenham, UK: Edward Elgar.Google Scholar
  41. Portney, P. R. and J. P. Weyant, eds. (1999), Discounting and Intergenerational Equity. Washington, DC: Resources for the Future.Google Scholar
  42. Ramsey, F. P. (1928), ‘A Mathematical Theory of Saving’, Economic Journal 38, 543–549.CrossRefGoogle Scholar
  43. Scheffer M. (1997), The Ecology of Shallow Lakes. New York: Chapman and Hall.Google Scholar
  44. Sefton, J. and M. Weale (1996), ‘The Net National Product and Exhaustible Resources: The Effects of Foreign Trade’, Journal of Public Economics 61, 21–48.CrossRefGoogle Scholar
  45. Serageldin, I. (1995), ‘Are We Saving Enough for the Future?’, in Monitoring Environmental Progress, Report on Work in Progress. Washington, DC: Environmentally Sustainable Development, World Bank.Google Scholar
  46. Skiba, A. K. (1978), ‘Optimal Growth with a Convex-Concave Production Function’, Econometrica 46, 527–540.CrossRefGoogle Scholar
  47. Solow, R. M. (1956), ‘A Contribution to the Theory of Economic Growth’, Quarterly Journal of Economics 70, 65–94.CrossRefGoogle Scholar
  48. Solow, R. M. (1974), ‘Intergenerational Equity and Exhaustible Resources’, Review of Economic Studies 41(Symposium Issue), 29–45.Google Scholar
  49. Tinbergen, J. (1954), Centralization and Decentralization in Economic Policy. Amsterdam: North Holland.Google Scholar
  50. Vincent, J. R., T. Panayotou and J. M. Hartwick (1997), ‘Resource Depletion and Sustainability in Small Open Economies’, Journal of Environmental Economics and Management 33, 274–286.CrossRefGoogle Scholar
  51. World Commission (1987), Our Common Future. New York: Oxford University Press.Google Scholar

Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Kenneth J. Arrow
    • 1
  • Partha Dasgupta
    • 2
  • Karl-Göran Mäler
    • 3
  1. 1.Stanford Research Initiative on the Environment, the Economy, and Sustainable WelfareStanford UniversityStanford
  2. 2.Faculty of EconomicsUniversity of Cambridge and St. John's CollegeCambridge
  3. 3.Beijer International Institute of Ecological EconomicsStockholm

Personalised recommendations