National income, welfare and the environment

This article explores the assumptions underlying present definitions of national income in its principal uses, and considers the alterations that would be needed to allow for the inclusion of environmental quality. A numerical example illustrates the impact of alternative measures. The discussion concludes that if we want national income to conform more closely to theoretical concepts of welfare indices, then we need to include a proxy for those environmental services that would not be completely free goods if it were possible to overcome their inherent non-marketability. The least unsatisfactory proxy would be the spending on environmental protection.