Net National Product as an Indicator of Sustainability

Abstract

Net National Product (NNP) can potentially serve several objectives, among others to measure value added and to be an indicator of welfare. In the aftermath of the World Commission on Environment and Development, however, it also seems important to investigate whether the concept of NNP can serve as an indicator of sustainability. The background for the interest in the problem of sustainability is that human economic activity leads to the depletion of natural capital. In the context of a competitive economy, John M. Hartwick&s;s rule states that a competitive equilibrium leads to a completely egalitarian utility path if and only if, at all times, the values of depleted natural capital measured in competitive prices equals the reinvestment in man-made capital. In fact, implementing an efficient constant consumption path in the model analyzed by R. M. Solow and Hartwick corresponds to maximizing the sum of utilities discounted at a positive and decreasing rate.