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Green GDP: measurement from a welfare perspective


Classic and neo-classic economic wlfare theory define welfare function: U(C(Y) ... According to market value: tabaco, alcohol, housing, cars, ... – PowerPoint PPT presentation

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Title: Green GDP: measurement from a welfare perspective

Green GDP measurement from a welfare
CASS-Nottingham Workshop on Environmental
Management 22-24 June, 2005 Nottingham University
  • Jiahua Pan
  • Research Centre for Sustainable Development
  • Chinese Academy of Social Sciences
  • Beijing 100732

Consumption and welfare
  • Conventional welfare function a concave function
    with respect to concumption of goods.
  • Welfare functional form inverse U type, with
    respect to consumption
  • Why negative welfare from consumption?
  • negative excessive nutritional intake
  • exteral damages wildlife losses
  • reversive consumption waste water treatment,
    medicine for over-weight treatment
  • Conception of right and limit
  • right survival, human aspiration
  • limit biological and physical

Consumerism measurement
  • Consumption-gtuntility-gtwelfare
  • Classic and neo-classic economic wlfare theory
    define welfare function U(C(Y)), that is
    welfere is determined by consumption, and
    consumption is a function of income.
  • Increase in income means improvement in welfare.
    GDP measurement is therefore based on functional
    assumption between welfare and income.
  • Economic development Wallace Rostows theory of
    development stages uni-dimentional, from
    traditional agrarian to mass consumption
  • GDP as a measurement of purchasing power
  • World Bank Development indicators ranking
    countries by per capita GDP level
  • Development target for reform in China
    doubling/quadruppling GDP

Materialism and consumerism misleading
  • Social trend more income, mass consumption
  • Purchasing power for what?
  • Poor health? Purchasing power for medicine?
  • No enjoyment of life? No Hobbies or no time
  • Freedom of thinking and speaking political
    right, personal freedom, institutional justice.
    No safeguarding of consumption
  • Consumerism-gtquality of life?
  • Money making machine, high consumption, but bad
    health, poor environment
  • Pursuit of consumerism corruption, robery
  • Wrong direction

Objective and comprehensive measurement of
  • Early in the 1950s UN initiative for quality of
    life measurement nutrition, physical buildup
    (height and weight), life expectancy, income,
    political and civil rights
  • Middle 1980s Amartya Sens post-welfarism
    strengthening the capacity for fulfillment of
    human potentials nutrition, health, employment,
    civil rights, political freedom are human rights
  • In 1990 UNDP Human Development Index equal
    weights to income, education and life expectancy
  • Consumerism measurement of welfare does not
    reflect quality of life with repects to
    nutrition, health, civil and political rights.

Limits to consumerism
  • Luxurious and wasteful consumption basic
    consumption is limited by biological features
    luxurious consumption is unlimited housing,
  • Biological limits biological boundaries exist
    height, weight, life expectancy, nutrition
  • Geo-Physical limit physical quantities of
    natural resources limited
  • Exhaustibles fossil fuels, metals, total amount
  • Renewables rate and quantity within a boundary,
    not unlimited
  • fixed solar power does not diminish, but at
    given time and area, energy intensity is fixed

Life expectancy and income(US(ppp)/a),2000
Calary intake 1964-1996 (k/d/c)
Comsumerism conteractive impacts on welfare
  • Material consumption contributes to utility and
    welfare, but not necessarily in the right
  • Types of utility from consumption
  • Positive utility marginal utility of consumption
    is greater than zero. Consumption contributes to
    welfare improvement.
  • Negative utility marginal utility of consumption
    is smaller than zero. Examples excessive fat and
    sugar intake leads to overweight, blood pressure.
  • Reversive utility marginal utility is greater
    than zero, but is used for reversing the negative
    utility from over consumption. Therefore, it does
    not lead to increase in total welfare. Examples
    some medicine, waste water treatment

Measurement of consumerism the diference between
economic and physical measurements (1)
  • Economic measurement so long there is
    consumption, there is value added and positive
    contribution to GDP is recorded. Therefore, no
    matter the utility is positive, negative or
    reversive, there is value added. In economic
    measurement, GDP is the sum of absolute value of
    three utilities positive, negative, and
  • Wefare measurement/quality of life measurement
    only posive utility is measured as negative and
    reversive utilities are at most offsetting one
    another. There is no enlargement of total welfare
    from negative and reversive utilities. Cosumerism
    often includes elemetns of negative and reversive

Measurement of consumerism the diference between
economic and physical measurements (2)
  • Biological measurement positive utility from
    material consumption is fixed from a biological
  • Bilogical benefits can grow within a upper
    boundary limit
  • Economic benefits can grow indefitely as it
    includes positive utility, negative utility, and
    reversive utility
  • The difference between biological and economic
    measurement is zero if positive utility in
    included then diverges when negative and
    reversive utilities are counted.
  • Other examples of native and reversive
  • Wastewater treatment within natual assimilative
    capacity, benefit of water conumption is
    positive higher than the capacity level, there
    is external cost investment and operation of the
    wastewater treatment facility are reversive
  • Protection of endangered species reversive

GDP numbers economic and biological measurement
Biological measurement
GDP measurement
Reducing the negative reversive consumptions
  • Change of consumer behaviour
  • Quality of living not amunt of material
    consumption and asset ownership
  • Understanding the limit biological and physical
  • Rights and limits of consumption
  • Basic need consumption is an essential part of
    human rights shuold be respected and guaranteed
  • Wasteful and luxurious consumptions in many
    cases, lead to negative and reversive utility
    cause damage to human health and the environment
    should be restricted

Reducing the negative reversive consumptions
  • Institutional measures legislation, ethical and
  • Economic measures incentives and
    disincentive.examples energy tax, tabaco tariff
    and alcohol tariff
  • Progressive taxiation on material consumption
    tripple dividends
  • Social protect the basic consumption by the
  • Environmental restriction on negative and
    reversive consumpiton of scarce natural
    resources reflecting the biological and
    physical/environmetnal limit
  • Economic/financial fundraising, for R D,
    redistribution of income
  • Market signal for efficiency improvement
  • Examples
  • South Africa free electricity to households 60
  • China Beijing progressive pricing on water

Progressive taxation
  • Tariff rate ab valurun, or ab
  • Accoding to quantity conumed basic necessities
    water, electricity, natural gas
  • According to market value tabaco, alcohol,
    housing, cars,