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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
Article

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.

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 

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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

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