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

This paper is about net national product (NNP). The authors are concerned with what NNP means, what it should include, what it offers us and, therefore, why we may be interested in it. They show that NNP, properly defined, can be used as a gauge for project evaluation, but they 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. The authors develop such indices as would be appropriate for making such comparisons. In particular, they 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. This 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." The authors show that this interpretation offers no purchase. It is the Hamiltonian that equals a constant-equivalent utility stream and they argue that, as the Hamiltonian is typically a non-linear function of consumption and leisure, it is of little practical use.