Welfare Measurement in an Imperfect Global Economy: Rich vs Poor Regions

This paper concerns green accounting in a global economy, which is characterized by transboundary environmental problems. The world is divided into two separate regions, and the regions differ substantially with respect to income per capita, emissions of greenhouse gases per capita, population growth, and how the production possibility is influenced by greenhouse gases. By using a numerical general equilibrium model, the purpose is to analyze the possibility of establishing meaningful social accounts based on the current value Hamiltonian, which constitutes a measure of the green NNP in utility terms. The results show that the current value Hamiltonian underestimates welfare in the rich region and overestimates welfare in the poor region. In addition, having incorporated the present value of future technological change in the welfare measure, very little precision is gained by going further and trying to measure the value of externalities from greenhouse gases.