Green Accounting and Environmental Efficiency Indexes1

We derive a theoretically consistent welfare measure that is to be interpreted as a `green ' net national product. A major advantage of the measure suggested is that, instead of using shadow prices of pollution that are not readily available, we can focus on quantitative data, or the annual consumption baskets actually chosen by societies. Using technology parameters, we derive the weights to be used in green NNP calculations for the adjustment of environmental effects. This issue has not been discussed in the context of green national income accounts to date, and here we show that this omission is partly a result of a tradition of modelling pollution externalities in growth models. We suggest that, in addition to the direct disutility caused by pollution, the effects of pollution on the natural resource base and its productivity should be considered. Otherwise, the result can be a `corrected ' but misleading measure of welfare. Finally, we discuss the feasibility of the measurement rule suggested