Decentralization Schemes, Cost-Benefit-Analysis, and Net National Product as a Measure Of Social Well-Being

Abstract

This paper is about net national product (NNP). We are concerned with what NNP means, what it should include, what it offers us and, therefore, why we may be interested in it. We show that NNP, properly defined, can be used as a gauge for project evaluation, but we also show that it should not be used in any of its more customary roles, such as in making intertemporal and cross-country comparisons of social well-being. We develop such indices as would be appropriate for making such comparisons. In particular, we show that comparisons of social well-being should involve comparisons of wealth. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies. Our analysis includes not only such economies, but also those where the government is capable of engaging only in policy reforms. The literature on green NNP has widely interpreted NNP as a ¿constant-equivalent consumption stream¿. We show that this interpretation offers no purchase. It is the Hamiltonian that equals a constant-equivalent utility stream and we argue that, as the Hamiltonian is typically a non-linear function of consumption and leisure, it is of little practical use.