Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Carlos Rymer
Gregg Mol
Hao Zhuang
Joey Notaro
Kubilay Kavak
Introduction..................................................................................................... 3
Discussion..................................................................................................... 15
Conclusion.................................................................................................... 17
References..................................................................................................... 19
Appendix....................................................................................................... 20
2
Introduction
Gross Domestic Product (GDP) is currently the international standard measure of a nation’s
economic status. GDP represents the monetary value of all the finished goods and services produced
within a country's borders in a specific time period (usually on an annual basis). It includes all private
and public consumption of materials, government outlays, investments and exports that occur within a
defined territory. The typical approach used to measure GDP is the expenditure method, which is
Since the 20th century, the world has pursued increased well-being and a greater quality of life
through economic growth as measured by GDP. Recently, there has been considerable debate about
GDP as a measure of economic growth because its inclusion of parts of the economy is limited and
inappropriate. The GDP has many serious problems, such as the flaws in calculating cross-border
trading, exclusion of the black market, exclusion of unpaid social and ecosystem services, and
inclusion of work that produces no net benefit or that results from repairing harm. It is becoming
increasingly clear that GDP is not a very good measure of economic growth that is inclusive of all
Simon Kuznets, designer of the GDP and the international system of National Accounts, said in
his first report to the U.S. Congress in 1934 that “the welfare of a nation can scarcely be inferred from
a measure of national income.” In order to ensure appropriate economic growth that maintains high
economic, environmental, and social performance, the economy must be measured in terms of quantity
and quality, especially in relation to environmental and social considerations. Growth should specify
improvement for each of these considerations in relation to raising the quality of life, something that
does not simply equate with greater access to material consumption. According to Robert F. Kennedy,
well-known environmental lawyer, “the gross national product includes air pollution and advertising
for cigarettes and ambulances to clear our highways of carnage. GNP includes the destruction of the
3
redwoods and the death of Lake Superior. It grows with the production of napalm, and missiles and
nuclear warheads... it does not allow for the health of our families, the quality of their education, or the
macroeconomic systems, rather than development of quality of life, is both ecologically unsustainable
and undesirable. They believe the ‘threshold hypothesis,’ the notion that when macroeconomic systems
expand beyond a certain size, the additional benefits of growth are exceeded by the attendant costs.1
The current GDP calculation focuses only on national income and growth. In this sense, it was
universally agreed that a proper measure of national income should be premised on the need to keep
income-generating capital growing. Since natural capital depletion, as well as human capital
depreciation, is not reflected in measures of national income, it is now strongly argued that the GDP
Moreover, when we emphasize global growth, we should also be aware and recognize the cost
which we pay and invest first for later incomes. Herman Daly pointed out: “Growth in GNP should
cease when decreasing marginal benefits become equal to increasing marginal costs. But there is no
statistical series that attempts to measure the cost of GNP. This is growth mania, literally not counting
the costs of growth.” GNP-flow is largely a cost. Wants are satisfied by the services of the stock of
wealth. The annual production flow is the cost of maintaining the stock, and though necessary, should
be minimized for any given stock level. If we want the stock to grow; we must pay the added cost of a
greater production flow (more depletion, more labor, and ultimately more pollution). Depletion, labor,
and pollution are real costs that vary directly with the GNP-throughput.2 In this sense, GDP should
take into account of increasing inequality, pollution or damage to people’s health than the environment.
If crime, divorce and other elements of social breakdowns are counted as economic gains, GNP will
1
Max-Neef, 1995.
2
Herman Daly, Steady-State Economics, Chapter 5: A Catechism of Growth Fallacies
4
not be able to demonstrate the real wealth of nation. As Gordon Brown said in his pre-budget statement
on environmental taxation, “quality of growth matters; not just quantity.” We need to redefine
progress, and replace GDP with new indicators of progress, which measure how our national policies
ecological economists have developed several indicators to improve, complete, and later replace GDP.
Those indicators try to correct GDP over a range of issues, such as income inequality, environmental
damage, and depletion of environmental assets, to create an indicator which better measures how our
economy delivers welfare for people.4 The first of these was Daly and Cobb’s Index of Sustainable
Economic Welfare (ISEW) in 1989; others include the Genuine Progress Indicator or GPI (1995), the
Sustainable Net Benefit Index or SNBI (1999), the Human Development Index (HDI), and a stock-
based indicator called Genuine Savings (GS). The ISEW, GPI, GS and SNBI try to convince those
countries to realize that when macroeconomic systems expand beyond a certain size, the additional
benefits of growth are exceeded by the attendant costs, and to eventually abandon the growth objective
The paper will mainly focus on three of above mentioned indicators: GPI, HPI, and ISEW, to
illustrate and analyze the contents of the measurement, as well as the applications. We also tried to
evaluate the feasibility of using these economic alternative indicators in reality, the constraints and
environmental, and social performance; it assumes that these considerations can complement each
3
Friend of the Earth: http://www.foe.co.uk/campaigns/sustainable_development/progress/replace.html
4
Friend of the Earth: replacing GDP. http://www.foe.co.uk/campaigns/sustainable_development/progress/replace.html
5
Philip A. Lawn, A theoretical foundation to support the Index of Sustainable Economic Welfare (ISEW), Genuine
Progress Indicator (GPI), and other related indexes
5
other. In order to measure sustainable development and base decisions on progress, alternative
indicators must be used to factor in the social and environmental aspects of society.6 In this section, we
explore case studies where GPI, HDI, and ISEW have been applied. We also identify barriers to
Alberta is a Canadian province where the GDP has increased in the last 40 years by more than
400%. While this improvement in the GDP signals that quality of life has improved, which it has, it
doesn’t necessarily account for social and environmental costs.7 Recognizing this shortcoming of the
GDP, the Albertan government publishes each year a report that defines progress based on 76
indicators that include economic, environmental, and social goals. This report, called Measuring Up,
compares progress to a set of goals determined by the Albertan government. It is made publicly
available for Albertans to decide whether the government has addressed all indicators appropriately.8
Although this government report has a set of indicators that include economic, environmental, and
social considerations, it does not equally satisfy the three pillars as well as the GPI does.
Alberta’s GPI for the period 1960-2003 was determined by a non-governmental organization
called The Pembina Institute. The GPI includes a total of 51 economic (12), environmental (17), and
social (21) indicators that measure the health of the Albertan economy in terms of the three
fundamental pillars. These indicators include such important considerations as greenhouse gas
emissions, water and air quality, poverty, and income distribution.9 While Alberta’s assessment of
progress heavily focuses on social improvement, the GPI places nearly equal weight on all three
considerations. In effect, the GPI deducts negative costs that are typically added to GDP in order to
6
Bossel, 1999:xi.
7
Taylor, 2006:5.
8
Alberta Finance. 2006:62.
9
Taylor, 2006:6.
6
The assessment on Alberta’s GPI was based on an index, where 100 was the highest possible
score. While GDP grew in the 1961-2003 period, GPI fell from 76 to 61.10 According to the Albertan
government’s progress report, there were overall improvements in the last few years, especially in
social and economic considerations.11 The graph below shows the changes in both GDP and GPI
Clearly, well-being as measured by GPI was radically different from well-being as measured by
GDP. In the first two decades, GPI was higher than GDP, while the opposite was true beginning in the
late 1980’s. In addition, the graph shows how GDP grew steadily while GPI decreased slightly and
stabilized. While there may have been a noted increase in monetary income per capita in Alberta
during this period, there may have been severe losses in natural and human capital in the form of
resource degradation or loss and higher human depreciation, such as crimes, diseases, accidents, and
incidences. In the case of Alberta, indicators have proven to be quite useful to the government in
enhancing overall quality of life and accounting for environmental and social aspects of society.
10
Pembina Institute for Appropriate Development. 2006:1.
11
Alberta Finance. 2006:62.
7
Adoption of alternative indicators by the Albertan government suggest that indicators may
prompt governments to 1) enact policies that reflect social and environmental considerations, 2) spend
more heavily on human and natural capital, and 3) begin valuing social and natural capital.
Conceptually, this may lead to policies that reflect the real costs of social and natural capital, and may
affect the market in such a way that encourages businesses to reduce negative social and environmental
impacts while increasing economic output. Similarly, this could affect consumers by providing
incentives that reduce consumption and increase conservation. The GPI, in particular, can thus prove to
be a useful starting tool for addressing environmental and social problems at all levels of society.
One of the major components of the ISEW calculation is what is called future reduction of
economic welfare. This is distinct from the current defensive costs incurred by environmental damage,
such as increased health costs from air pollution and the cost of cleaning up polluted water. This
“future reduction” includes two things: (1) the depletion of natural resources such as fossil fuels and
mineral resources and (2) the effects of long-term damage such as climate change, both of which are
expected to incur future costs. Expenses from these categories are difficult to quantify and are subject
to challenges on theoretical grounds; however, they are crucial—they can constitute from one-half to
Using non-renewable resources can be costly to future welfare if we are reducing the
amount available for use in the future. However, if other energy substitutes are available by the
time these resources are fully depleted, then their current depletion does not incur a future cost
or reduction in welfare. Therefore, the current cost of such resource use depends upon the rate
at which substitutes are being developed and upon the degree to which society is prepared to
deal with the loss of such resources; how to account for this is at the crux of the debate. The
view of conventional economics is that natural resource depletion does not cost society as
alternative methods of resource use will be fully developed by the time that some natural
8
resources are exhausted. Nordhaus and Tobin, argue that “reproducible capital is a near-perfect
substitute for land and other exhaustible resources.” 12 Consequently, they did not include
resource depreciation in their indicator, which focused more on social variables. Similarly,
Serafy objects to depreciation of the full value of resource depletion on the ground that “capital
stocks to substitute for these resources can be built up from the revenues of non-renewable
resources
However, most ISEW studies do exactly what Serafy objects to. The authors of the Austrian
ISEW reject Serafy’s position by arguing that “…while this holds true theoretically, there have been
no empirically relevant attempts to develop such technologies that would justify a different treatment
of this position.”13 Cobb and Cobb claim that “the faith in the infinite substitutability of resources is
founded on the experience of a peculiar period in history, during which energy was extremely
cheap.”14 This point is central to the entire functioning of the ISEW; however, it requires substantial
non-economic data to properly argue, and neither side sufficiently provides such evidence.
Because of this debate, there are a range of methods used to account for resource depletion. The
original ISEW developed by Daly and Cobb used the entire value of extracted resources and extraction
costs. Cobb and Cobb later decided to use a “replacement cost,” which is the cost of using renewable
energies to replace current fossil fuel use.15 The important factor in the “replacement cost” method is
Finally, some studies use more conservative accounting methods such as the Serafy method or
Hotelling rent. Both are calculations that attempt to determine the portion of revenues generated by the
resources that must be set aside to compensate for the depletion of the resource. One explanation for
Hotelling rent is that “if a mine owner invests the [annual] Hotelling rent in an interest-bearing account,
12
Nordhaus and Tobin, 1972:14
13
Stockhammer et al., 1997:29
14
Cobb and Cobb, 1994:38
15
Jackson, McBride, 23
9
then by the time the mine is exhausted he will have accumulated sufficient funds to purchase an
equally valuable mine to maintain his mining business.”16 Similarly, the Serafy method “estimates the
amount of money that would need to be set aside…to generate a permanent income stream that would
The depletion of natural resources represents approximately 37% of all deduction items in the
US ISEW in 1990, 31% in the UK ISEW in 1996, 21% in the Swedish ISEW in 1992, and 36% in the
Dutch ISEW in 1992. Depending on the method used, these amounts can vary widely. In the Chile
study, use of the “Hotelling rent” method instead of the replacement cost reduces the difference
between ISEW and GDP by half, and results in net growth of ISEW during the period 1965-1995
instead of net loss.18 Similar “sensitivity analysis” done for the US and UK show that use of Hotelling
rent results in significant change. In the US, this results in a very slight growth in the ISEW, and in the
UK the ISEW growth rate mirrors that of GDP, but at a lower starting value.19 Since most ISEW
studies used the replacement cost method, it is reasonable to assume that using different methods
would result in similar adjustments. The Italy study, the only one to explicitly use the Serafy method,
Clearly, this is a point that needs further study and debate and, most importantly, more data
pertaining to natural resource use and alternative technology development. Cobb and Cobb admit “that
there is a great deal of arbitrariness in any effort to account for depreciation of ‘natural capital.’”21 The
ISEW will not be properly accepted until this is resolved; one alternative direction suggested by this
debate is that ISEW would be more appropriate as a non-aggregated set of multiple indicators, as
suggested by Neumayer.
16
Vincent, 1997
17
Cobb and Cobb, 1994:69
18
Castaneda, 1999:242
19
Neumayer, 1999:86
20
Jackson, 28
21
Cobb and Cobb, 1994:72
10
The other crucial point of contention is the accounting for “long-term environmental damage,”
which ostensibly includes treatment of nuclear waste and other issues but essentially deals with climate
change. It is equally significant as resource depletion. The center of the debate is whether the costs of
climate change should accumulate over time rather than merely increase.
The yearly costs themselves are not as contentious as the accumulation method; Neumayer
writes: “I do not claim here that a marginal [yearly] social cost per tonne of carbon of $75 (US ISEW)
or £228 (UK ISEW) would be unjustifiable. It is true that $75 is close to the upper end of damage cost
Neumayer (2000) shows that, depending on the methods used, the ISEW studies can be made,
in many cases, to rise over time rather than decline. While they still fall way short of GDP in absolute
terms, the change in the directional trend is more important in interpreting the ISEW than its numeric
value. Therefore, the different methods of calculation have huge implications for the ‘threshold’
The Human Development Index (HDI) is an international registry of relative national well-
being indicators published by the United Nations Development Programme (UNDP) annually in the
Human Development Reports (HDRs). The composite index essentially measures the degree of
“human development,” which the UNDP defines “in the HDR as ‘a process of enlarging people’s
choices.’”23 Principally, the HDI measures this human development as a combination of three
components, including the ability to live a long and healthy life, access to education, and a decent
standard of living and material conditions.24 From this rather simplistic foundation, the HDI has been
criticized and propositionally expanded by members of the academic community seeking to arrive at
more refined indices in order to accurately capture the level of human development within countries.
22
Neumayer, 2000:34
23
Kelley, 1991:316.
24
Kelley, 1991:316.
11
The HDI is an outgrowth of the international global economy context of the late 1980s that was
dominated by the Bretton Woods Institutions, namely the World Bank and IMF.25 This was a response
to the perceived failure of structural adjustment policies that had left Global South nations relatively
impoverished despite growing GDPs in several different corners of the global market.26 Haq was
instrumental in encouraging the UNDP to sponsor the HDRs in the first place and the ultimate measure
of “human capabilities” came from Sen’s own previous decades of theoretical insight.27 Perhaps, the
most intriguing aspect of the HDR, and by extension the HDI, is that the report has the institutional
support of the UNDP but is also independently authored by a number of intellectuals that provide input
into the process of calculating each country’s HDI.28 Thus, it has been a relatively strong competitor
In its inception, the HDI was constructed as a composite of three separate measures of health,
education, and income that were derived from the life expectancy at birth, the adult literacy rate, and
the GDP per capita adjusted to purchasing-power-parity, respectively.29 Each component is given
minimum and maximum values and a “deprivation index” is calculated based on how far a nation’s
data are from the maximum potentials.30 The only exception to this reasoning is for the income scale
which assumes diminishing marginal utility as income increases beyond a certain established point and
in this case a logarithmic scale is used.31 All three variables are assumed to be relatively independent
of each other and so are arithmetically averaged and weighted equally to arrive at a mean deprivation
score.32 This number is then subtracted from unity to determine the consequent level of human
development. There have only been a few major changes in methodology, including combining the
adult literacy rate with mean years of schooling, “giving 2/3 weight to the former and 1/3 weight to the
25
McNeill, 2007:5.
26
McNeill, 2007:10.
27
McNeill, 2007:6-7.
28
McNeill, 2007:12.
29
Kelley, 1991:316.
30
Kelley, 1991:317.
31
Kelley, 1991:317.
32
Kelley, 1991:319.
12
latter,”33 as well as using the Atkinson adjustment formula instead of a simple logarithmic
transformation for accounting for diminishing returns to higher incomes34 (the Atkinson formula later
being abandoned for the old methodology). Also, the minima and maxima were fixed for each
indicator in 1994, whereas they had previously been decided by the lowest and highest national values
respectively for the given year.35 This fixing has allowed for intertemporal comparison, another reason
why the HDI calculations have received so little methodological changes in its existence.
The relative lack of change has received considerable critical attention in the years since the
HDI was first introduced. Sagar and Najam derive a Reformed HDI (RHDI) that replaces the
arithmetic averaging of the constituent components with a product of the three because “the scheme of
arithmetic averaging runs counter to the notion of their being essential, and, therefore, non-
distributional measures of each of the three components into the overall index.37 He found a significant
correlation between inequality in both education and longevity to greater human development and
therefore, argues that distributional scores should be accounted for.38 Neumayer offers an alternative
HDI that included sustainability in the analytical framework by questioning whether a current level of
human development appears to be unsustainable, given depreciation of natural capital stocks.39 This
measure attempts to redress environmental deficiencies in the HDI by questioning simply whether
current income levels can be sustained over an indefinite period of time.40 Morse has extended the
possibilities for addressing sustainability by positing that the HDIs be qualified with a measure of a
country’s ecological footprint.41 Morse agrees with Neumayer in maintaining the basic measures of
33
Sagar and Najam, 1998:251.
34
Sagar and Najam, 1998:251.
35
Sagar and Najam, 1998:251.
36
Sagar and Najam, 1998:251.
37
Hicks, 1997:1292.
38
Hicks, 1997:1290.
39
Neumayer, 2001:105.
40
Neumayer, 2001:106-107.
41
Morse, 2003:194.
13
the HDI and to avoid creating ever more complex indices but believes that it would be best to also
evaluate at what expense of ecological deficit human development is maintained.42 For intertemporal
comparisons, however, it appears that the HDR will not change its methodology in the near-future,
Morse offers a compelling example of the state of the HDI in use with a comparative case study
of African trading blocks over a ten-year period. Morse illustrates how, in practice, disaggregating the
HDI shows important regional trends that may not be seen otherwise, citing life expectancy declines in
the Southern African Development Community (SADC) with the AIDS crisis, despite an overall
increase in the aggregate HDI.43 Furthermore, much of the HDI increase can be accounted in the
changes in methodology experienced for education in 1994 and not much in a change in the actual
level of human development per se.44 Ultimately, Morse suggests that an aggregate index may belie
some of the very foundations of human development in the first place; that is, the enlarging of people’s
indicators of sustainable development that offers people with a host of measures to raise awareness
about local issues, a method that accommodates participatory action and attention to crucial
information that may be hidden in the aggregated data.46 Flexibility in measurement may be vital to
encourage participation and elide the supposed consistency of the HDI’s methodology by continually
42
Morse, 2003:193-194.
43
Morse, 2004:14-15.
44
Morse, 2004:12.
45
Morse, 2004:15-16.
46
Morse, 2004:17.
14
Discussion
The Advantages of the Alternative Indicators
The main advantage of the alternative indicators is their initial reference point. Since they begin
with personal consumption expenditure, they promote less production that degrades natural resources
in contrast to GDP, which is in favor of more production regardless of whether natural resource
Another advantage is that they include income distribution, which GDP neglects. Most
economists criticize GDP because it does not take the overall welfare of society into consideration.
Lawn points out that “if personal consumption expenditure does not change from one year to the next
but the distribution of income deteriorates, the economic welfare enjoyed by society as a whole is
likely to fall because the marginal benefit uses of the rich is less than the marginal benefit uses of the
poor.”47 Therefore, paying attention to income distribution makes the alternative approaches more
comprehensive.
There are other factors that augment the scope of the alternative indicators, such as “the value
of household and volunteer work, costs of mobility and pollution, and the depletion of social and
natural capital.”48 In this regard, deducting the cost of noise pollution, commuting, crime,
underemployment, unemployment, and lost leisure time provides a broader picture to understand the
overall economic picture. Similarly, the cost of sacrificed natural capital services is also incorporated
into computations. The loss of farmland, the cost of ozone depletion, air and water pollution, the loss
alternative indicators because normally “a large portion of the human-made capital produced each year
47
Lawn, 2003:112.
48
Costanza et al., 2004:154.
15
does not contribute to the psychic income of a nation.”49 These expenditures are dedicated to prevent
the undesirable side-effects of the economic activities. Amongst them the cost of household pollution
The most important criticism to the alternative indicators is the valuation of different assets.
There are two challenges in this respect: (i) the valuation method and monetizing of different assets,
It is a well-known reality that valuing such assets as human life and leisure is quite difficult.
Despite the existence of some methods,50 they are highly open to discussion. Moreover, they produce
very different results in different countries due to different wage levels, overall welfare, and other
factors. For example, the value of a human life in the US may be ten to twenty times higher than the
value of a human life in a developing country. This complicates the matter in terms of comparison.
Same problem is prevalent for environmental assets. Although there are some techniques51 used
to measure the existence value of a natural asset, they are still open to question52 and subject to change
due to society’s priorities. For example, two rivers in two different countries having virtually similar
characteristics can be evaluated very differently. There is not a standardized method to measure the
Lawn emphasizes that the valuation methods used by the alternative indicators “are extremely
crude and often involve the use of very heroic assumptions.”53 Even in the computation of some very
technical issues, estimates may be based on very rough assumptions. Therefore, the values of some
49
Lawn, 2003:113.
50
Hedonic price method is a good example, which measures how wage rates change with death or injuring risk and infers
the value of life.
51
For example, contingent valuation (stated preference or hypothetical valuation) method, which aims to find individual’s
willingness to pay for a good by posing a set of questions regarding preferences directly to the individuals, is widely used.
Similarly, travel cost method is frequently applied to reveal the value of a natural environment (e.g. parks) that people visit
to appreciate.
52
Kolstad, 2000:331-332, 344-350.
53
Lawn, 2003:116.
16
items are likely to be distant approximations of their correct value. In addition, different cultures and
life standards are ignored in these calculations. In order to show how these factors deeply affect the
The second serious criticism for the alternative indicators is that they only count the cost of lost
natural capital services. “They are based on current flows rather than stocks and thus do not really
address the maintenance of capacity, which some would argue is at the heart of sustainability.”54
Knowing the degree of decline in stock of natural capital is as important as valuing environmental
damage. In this regard, another criticism is their inability to reveal about the future impact of current
The third criticism is about the assumption that all personal consumption expenditure
contributes to human well-being. Lawn states, “Since this item includes the consumption of junk food,
tobacco products, alcohol, and guns, it is unlikely that all consumption expenditure will boost the
psychic income of a nation’s citizens.”55 Finally, there are still some important factors that are
unaccounted in these indicators. The disutility of certain forms of work and the existence values of
Conclusion
Alternative indicators promise a better approach by taking into account social and
environmental aspects of society. Alternative indicators that account for economic, environmental, and
However, there are some roadblocks to enforce these indicators worldwide. In a world where
businesses grow quickly and have a significant influence on government, it is difficult to fully
incorporate societal aspects other than economic transactions into national accounts. Clearly, the
54
Hanley et al., 1999:56.
55
Lawn, 2003:115.
17
adoption of any alternative indicator that fits the mission of sustainable development will involve long
negotiations and substantial changes to what is included in any given alternative indicator.
On the other hand, adoption of an alternative indicator that accounts for social and
environmental costs may prove to be an effective incentive to increase spending in increasing social
and environmental capital, eliminate market distortions so as to include so-called externalities, and
Consequently, this may allow businesses to make high social and environmental performance
profitable, and may change the current culture of high consumption and little social and environmental
concern to one of high efficiency and greater socially and environmentally sound behavior. We
conclude that as nations continue to face more severe social and environmental consequences of the
GDP, there will be room for a shift to an alternative indicator that reflects the goals of sustainable
development.
18
References
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Appendix
Here are some examples, which show how factors mentioned in the discussion part, affecting
1) Valuation of household or volunteer work: To do this, one has to decide on a wage rate. The
alternative indicators choose a base rate for household workers or volunteers performing the same
tasks as paid workers. However, “this could be well below or well above the ‘real’ rate, because, for
example, paid household workers may be significantly underpaid or volunteers may be significantly
2) Cost of crime and cost of family breakdown: These are strongly related to cultural values and
vary in different cultures. Without taking cultural factors into consideration, making a comparison may
not give economically meaningful results. For example, in places where divorce is seen as a great
56
Costanza et al., 2004:149.
20
shame, the possible cost of family breakdown is likely to be less. Similar arguments can be raised for
3) Cost of commuting: In places where oil prices are relatively higher due to taxes levied by the
government, cost of commuting will likely to be higher. Consequently, it would decrease the GPI.
However, it is known that oil taxes are applied in some countries to deter drivers to drive more. So,
4) Cost of automobile accidents: These costs will highly vary between developed and
developing countries since the value of human life changes with respect to income levels and the
overall welfare.
Vermont case study by using the “estimated cost of replacing one barrel of oil with a renewable
resource.”57 The renewable resource here is ethanol. Nevertheless, ethanol is not available in most
places of the world. Obviously, this is not a good yardstick. If one wants to use any other benchmark, it
would not be a renewable source because today’s available alternative fuels (LPG, CNG, etc.) are
mostly non-renewable. Briefly, the alternative indicators use a series of adjustments, which may vary
1) How can using these alternative indicators affect business? We know that there are numerous
factors that especially multinational corporations take into account for an investment decision. These
factors involve convertibility or exchange power of the country, soundness of legal institutions and
courts, financial markets of the country, proximity to possible markets, loosened environmental
standards in the country, attitude of the government towards foreign capital, cheap labor, well educated
57
Costanza et al., 2004:144.
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human capital, etc. It is still ambiguous whether or not big corporations want to use alternator
indicators before making decision about a new investment since they don’t even care GDP.
2) From the developing nations’ point of view, it is also uncertain that the governments in these
countries would be willing to apply new measuring methods. There are two reasons: (i) Even the
computations performed for GDP are not quite reliable, and they are unlikely to want to undertake
more responsibility or red tape unless there is a certain incentive. (ii) If GPI measurements increase the
position of poor countries in the overall ranking, they probably will be reluctant since they get money
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