Depletion: Bridging the Gap Between Theory and Practice

Adjusting national income for depletion is important in order to send correct signals to policy makers. This article reviews a number of depletion measures that have been recently brought forward in the context of environmental accounting (‘practice’) and green accounting (‘theory’): depletion as change in total wealth; depletion as ‘using up’ of the resource; depletion as net savings; or, depletion as net investment. The differences in assumptions between these measures are clarified by contrasting their approaches with the classic theory of a firm engaged in extraction. All measures are evaluated using a time series of data on Dutch natural gas reserves. Our main findings are that correcting for the cost of depletion would lead to significant adjustments of both level and growth rates of Dutch net national income, with a strong dependency on the chosen measure.We counter criticism that accounting in practice would necessarily underestimate depletion. The choice for a depletion measure should be determined by the context of use: measurement of social welfare or sustainable income. The physical measure put forward in the SEEA Central Framework can be justified by its consistency with the income concept that underlies the SNA.     

The Welfare Economic Theory of Green National Accounts

This paper takes a critical look at the literature on green national accounts. The problem studied is to find a linear index of economic variables that responds to perturbations in the same direction as social well-being. The thesis of a large literature, that net national product (which is a flow) is that index in closed economies, is shown in some interpretations to be simply false and in others to suffer from deep estimation problems. It is argued that capital depreciation using shadow prices should certainly be included in national accounts, but that the right welfare index is a comprehensive measure of wealth, defined as the shadow value of an economy’s stock of all capital assets. It is shown that comprehensive wealth is usable as a criterion for policy evaluation as well as for determining sustainable economic development.     

In the wake of austerity: social impact bonds and the financialisation of the welfare state in Britain

This paper provides an analysis of the financialisation of the British welfare state. In a continuation of neo-liberal privatisation and labour market activation, the financialised welfare state pursues a policy of welfare retrenchment, while engaging in forms of social engineering aimed at producing self-responsibilised individuals and communities who are financially literate, ‘investment-ready’ and economically productive. New financial instruments such as social impact bonds are deployed to these ends, both to ‘solve social problems’ and enable cost saving. Through the use of such financial instruments, the implementation of regulatory infrastructures and tax incentives, the financialised welfare state becomes a vehicle for the transfer of wealth from the public to private investors, while subjecting the domain of social policy to the vicissitudes of global financial markets. This paper offers a critique of these developments, situating the case of Britain within the broader global context and with regard to the implications for understanding the current political economy of the welfare state.     

Welfare implications of net social security wealth

Real net social wealth (NSSW), the real present value of social security benefits received minus social security taxes paid, is frequently used as a direct proxy measure for the impact of a social security system on generation welfare. The present paper establishes to the contrary, for a class of overlapping generation economies, that NSSW can be simultaneously negatively correlated with welfare for every agent in every generation. More generally, the paper determines the extent to which social security is needed in these economies to ensure social optimality, and investigates the proper subset of economies for which NSSW and generation welfare exhibit positive correlation.     

Intergenerational discounting: a new intuitive approach

This paper proposes a new intergenerational discounting approach for computing net benefits from the use of environmental resources. The approach explicitly incorporates the perspectives of both the current and future generations, as argued for by Pigou [Pigou, A.C., 1920. The Economics of Welfare 1952 (4th edition), London: Macmillan] and Ramsey [Ramsey, F.P., 1928. A mathematical theory of saving, Econ. J., 38 543–559], and required by most national and international laws related to the use of these resources. An equation for use in the calculation of net discounted benefits is developed, which provides a ‘middle’ position whereby both the ‘reality’ of ‘personal’ discounting and that of ‘social’ discounting are included in a social welfare function.     

Natural resources, capital accumulation and the resource curse

Early concern by economists for the effect of natural capital on economic growth gave way to complacency and neglect during the nineteenth century. Evidence has emerged, however, that since the 1960s the economic performance of low-income countries has been inversely related to their natural resource wealth. This relationship is not a deterministic one so policy counts. SEEA can help improve the policy and performance of resource-abundant low-income countries by reinforcing the rationale for the sound management of natural resources and also by providing an index of policy sustainability in the form of the net saving rate. This policy index, along with other measures such as a capital fund for sterilizing the rent, initiatives to increase the transparency of rent flows and the rigorous evaluation of alternative uses of additional public sector revenue can improve the efficiency by which natural resource rent is transformed into alternative forms of capital to sustain rising social welfare. Chad and Mauritania provide case studies to illustrate how SEEA and net saving can be used to diagnose policy failure and improve economic performance.     

EDUCATION AND THE NATIONAL WEALTH OF THE UNITED STATES*

Human capital theory has motivated a great many empirical investigations into the relationship between education and earnings potential. These studies test refinements of the theory, but do not attempt to value education for the economy as a whole. This study develops series which track human wealth and its educational components for the United States from 1946 to 1980. Three related educational time sequences emerge: (1) schooling wealth, the present value of the current and future contributions of the existing schooling stock to national income; (2) net change in schooling wealth, the amount added to present value in that year; and (3) schooling investment, the present value of the future contributions of the new schooling conducted in that year. One important lesson of this exercise is that the last two series can be quite different as a result of the pattern of appreciation and depreciation of human wealth over the lifetimes of individuals. Moreover, education increases the age of peak human wealth and thus should shorten the period during which individuals save for retirement. This phenomenon may induce a demographic cycle in the nation's savings rate, especially evidenced with the aging of the baby-boom cohort. The magnitudes of the human and schooling wealth estimates are large when compared to financial wealth. For a 4 percent rate, the period-wide average for human wealth is five times-and schooling wealth 2.6 times-the Federal Reserve Board's measure of household net worth. These estimates are naturally sensitive to the discount rate chosen, but show that the gap between human and financial wealth has been widening and that the value of schooling provided in any year greatly exceeds its cost. Schooling represents a form of saving whose value is several times the conventional measure of saving.     

Accounting for India's forest wealth

In this paper, we account for forest wealth in India. Changes in the timber and carbon wealth embodied in these forests are related to important green national accounting aggregates such as genuine saving and the change in wealth per capita. Important accounting issues include the timing of carbon releases that occur when forests are disturbed, as well as the valuation of these releases. Our empirical findings suggest that while India's forest wealth is substantial, net changes in this wealth are arguably not so large at least in relation to GNP. However, when viewed in the context of the wealth-diluting effects of population growth this implies a far larger additional savings effort is required to cover the (net) loss in forest values than otherwise appears to be the case. Finally, we examine ways in which the accounting approach that we adopt can be reconciled with approaches which stress conserving forest wealth.     

Capital Gains and Income Arising from Nonrenewable Resources

Should capital gains be included in income arising from nonrenewable resources? In the present paper, I show that capital gains from a nonrenewable resource can be divided into two terms: real price change effects and real interest rate change effects. By application of sectoral income theory developed by Asheim and Wei (Environ Res Econ 42:65–87, 2009), only the former term is part of real income of the resource and the latter term should not be included. This result is significant in the sense that all change in real resource wealth can be included as part of real income only if future real interest rates are assumed to be constant. Hotelling rule always implies that capital gains from nonrenewable resources coincide with real interests on resource wealth; net investment generated from the resource cancels out current cash flow from the resource; and real income comes from price change effects.     

Social Justice in Comparative Political Economy: Lessons from Habermas and the Contemporary German Case

This article critiques recent operationalisations of social justice theories in empirical research in comparative political economy from an epistemological entry point. It offers an alternative epistemic framework based on Habermas’s system and lifeworld distinction to reconcile normative theory with empirical research before developing a critical theory of social justice based on two principles: Nancy Fraser’s parity of participation and Hauke Brunkhorst’s notion that functional differentiation in systems cannot generate asymmetric moral standards. These principles are then operationalised for regimes of welfare capitalism before exploring the contemporary German labour market in these terms, drawing on original qualitative research. It demonstrates that parity of participation cannot be achieved when the moral duty to participate is asymmetrically applied. It concludes capitalism is inherently unjust in any variety due to the inequality of wealth and free movement of capital reinforcing the inequality of moral expectations characterising the lived experience of welfare-mediated labour markets. Therefore, accepting this inherent injustice and whether institutions of the welfare state exacerbate or mitigate it should be the central focus of future research on social justice in comparative political economy.     

Some general equilibrium analysis applied to fiscal harmonization in the European community

This paper applies numerical general equilibrium analysis to consideration of domestic welfare impacts of some alternative schemes of fiscal harmonization in the E.E.C. A ‘coefficient of resource saving’ showing the maximum percentage resource shrinkage or minimum resource expansion consistent with a current welfare level is computed for each of 5 E.E.C. member states under a number of alternative tax replacements.     

Savings growth and the path of utility

Abstract.  We derive an expression relating the change in instantaneous utility to the growth of net (genuine) saving in an economy with multiple stocks and externalities that maximizes welfare in the utilitarian sense. This result is then shown to hold for decentralized competitive efficient economies as well, to yield an extension of the Hartwick rule: instantaneous utility is non-declining along a development path if genuine saving is decreasing. By way of example the rule is applied as a constant genuine saving rate rule in a simple Dasgupta-Heal-Solow-Stiglitz economy. The rule yields a path with unbounded consumption and higher wealth than on the standard Hartwick constant consumption path.     

Measuring the Level and Inequality of Wealth: An Application to China

We construct and compare three distinct measures of household asset wealth that complement traditional income‐ or expenditure‐based measures of socioeconomic status. We apply these measures to longitudinal household survey data from China and demonstrate that household asset wealth has been increasing over time, a theme consistent with many previous studies on the process of development in China. Unlike other studies that have shown rising income inequality over time, however, we show that asset wealth inequality has actually been declining in recent years, indicating widespread participation in the benefits of economic reforms. Furthermore, the evolution in the cumulative distribution of household welfare is such that social welfare has been increasing with the passage of time, despite rising inequality in the early years of the survey.     

STOCK PRICE VOLATILITY,NEGATIVE AUTOCORRELATION AND THE CONSUMPTION–WEALTH RATIO: THE CASE OF CONSTANT FUNDAMENTALS

Based on infinite horizon models, previous theoretical works show that the empirical stock price movement is not justified by the changes in dividends. The present paper provides a simple overlapping generations model with constant fundamentals in which the stock price displays volatility and negative autocorrelation even without changes in dividend. The horizon of the agents matters. In addition, as in recent empirical works, the aggregate consumption–wealth ratio ‘predicts’ the asset return. Thus, this framework may be useful in understanding different stylized facts in asset pricing. Directions for future research are also discussed.     

Optimal Pollution Abatement Under ‘Sustainable’ and Other Social Time Preferences

This paper analyses optimal pollution abatement expenditure and the pricing of pollution under alternative social time preferences, including ‘sustainable’ preferences, defined as those that are consistent with two axioms of sustainable development introduced by Chichilnisky (Land Econ 73:467–491, 1997). These axioms state essentially that neither the welfare of present nor future generations ought to be favoured over the other in determining the socially optimal path of economic development. The method is to calibrate a modified Ramsey model of optimal global growth and saving, where pollution is generated by the global output of goods and services. Pollution in turn reduces output. The simulation results illustrate how sensitive the optimal pollution price and abatement expenditure can be over time to assumptions about the social time preference rate. They also show that ‘sustainable’ preferences impose a lower burden on future generations in terms of the pollution price and abatement expenditure. Hence there is a case for governments to make explicit their value judgments about intergenerational welfare, in the context of their notion of sustainable development, when setting target pollution abatement levels and pollution prices over time.     

Capitalists,workers, and the burden of debt

Abstract

This paper analyzes the burden of debt in a growth model that combines overlapping generations of workers who save for life-cycle reasons and dynastic agents who save for bequest reasons (‘capitalists’). Ricardian Equivalence prevails, but capitalists regard the debt serviced out of taxes on workers as net wealth. In the long run, the Cambridge Theorem holds: the relationship between the rate of profit and rate of growth is determined by the capitalist saving function, independently of worker or government saving. Two alternative closures are considered. Under exogenous growth constrained by a fully employed labor force, debt and deficits result in temporary effects on the distribution of income but permanent effects on the distribution of wealth. Under endogenous growth constrained by a fully utilized capital stock, debt and deficits result in temporary effects on the growth rates of the components of wealth and permanent effects on the level and distribution of capital.     

Keep up with the winners: Experimental evidence on risk taking,asset integration,and peer effects

The paper reports the result of an experimental game on asset integration and risk taking. We find some evidence that winnings in earlier rounds affect risk taking in subsequent rounds, but no evidence that real life wealth outside the experiment affects risk taking. Controlling for past winnings, participants receiving a low endowment in a round engage in more risk taking. We test a ‘keeping-up-with-the-Joneses’ hypothesis and find that subjects seek to keep up with winners, though not necessarily with average earnings. Overall, the evidence suggests that risk taking tracks a reference point affected by social comparisons.     

什么决定了中国商业银行的净利差?

:本文运用Ho和Saunders(1981)提出的银行净利差(netinterestmargin)决定因素的理论模型并进行拓展,引入了平均运营成本、资产规模和其它因市场不完美引起的因素,采用1996—2003年间的面板数据,运用固定效应模型对中国商业银行的净利差决定因素进行了实证分析。结果发现决定净利差的因素包括:市场竞争结构、平均运营成本、风险厌恶程度、贷款比率、交易规模、隐含利息支付、准备金的机会成本、管理效率、资产规模等。实证结果不仅对商业银行本身提高经营管理水平和增加利润具有重要的价值,而且对政府监管部门制定政策提高社会福利具有一定的指导意义。文章最后根据实证分析结果提出了一些政策含义。     

Resource depletion under uncertainty: implications for mine depreciation,Hartwick’s Rule and national accounting

Lozada’s equation [Resource and Energy Economics 17 (1995) 137] for the change in value of a non-autonomous dynamic program is generalized to stochastic control and applied to the depreciation of a competitive mine facing price, reserve and discount rate uncertainty. Mine depreciation includes the costs of these risks, as well as an adjustment to the ‘net price’ used to value depletion and revisions. The change in value equation also provides the basis for a stochastic version of Hartwick’s Rule [American Economic Review 67 (1977) 972] for sustainable consumption, that the risk adjusted value of net investment equal zero. The analysis has implications for the Weitzman [Quarterly Journal of Economics 90 (1976) 156] welfare measure and the stochasic Hamiltonian.     

Asset pricing in large information networks

We study asset pricing in economies with large information networks. We focus on networks that are sparse and have power law degree distributions, in line with empirical studies of large scale social networks. Our theoretical framework yields a rich set of novel asset pricing implications. We derive closed form expressions for price, volatility, profitability and trading volume, as functions of the network topology. We also study agent welfare and show that the network that optimizes total welfare is typically a uniform one with an intermediate degree of connectedness.