Testing genuine savings as a forward-looking indicator of future well-being over the (very) long-run

D. Greasley; N. Hanley; J. Kunnas; E. McLaughlin; L. Oxley; P. Warde

doi:10.1016/j.jeem.2013.12.001

Testing genuine savings as a forward-looking indicator of future well-being over the (very) long-run

D. Greasley, N. Hanley, J. Kunnas, E. McLaughlin, L. Oxley, P. Warde

Research output: Contribution to journal › Article › peer-review

Abstract

Genuine Savings (GS) have been much used in recent years as an indicator of a country's sustainability. According to some theorists (e.g. Arrow et al., 2012), under certain conditions a country with a positive level of GS should experience non-declining future utility, given the assumption of unlimited substitutability among all forms of capital (sometimes called "weak" sustainability). This paper reports the first very long-run tests of GS (also called comprehensive investment or adjusted net savings) as a forward-looking indicator of future well-being. We assemble data for British capital back to 1765, and construct several net investment measures which are used as indicators of two alternative measures of future well-being: consumption per capita and real wages. An allowance for a "value of time" due to exogenous technological progress is included in some GS measures, and we demonstrate the importance of this measure and the choice of discount rate over the very long-run. On the whole, our results do not reject the postulated relationship between GS and future well-being, and show GS can be a forward looking indicator of future well-being for periods of up to 100 years.

Original language	English
Pages (from-to)	171-188
Number of pages	18
Journal	Journal of Environmental Economics and Management
Volume	67
Issue number	2
Early online date	17 Dec 2013
DOIs	https://doi.org/10.1016/j.jeem.2013.12.001
Publication status	Published - Mar 2014

Keywords

Sustainable development
Genuine savings
Comprehensive investment
Future well-being
British economic history
Technological progress

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10.1016/j.jeem.2013.12.001

Greasley_et_al_JEEMrevision2
© 2014. Elsevier Inc. All rights reserved. This is the author’s version of a work that was accepted for publication in Journal of Environmental Economics and Management. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Environmental Economics and Management, 27, March 2014 DOI http://dx.doi.org/10.1016/j.jeem.2013.12.001
Accepted author manuscript, 1.38 MB

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abstract = "Genuine Savings (GS) have been much used in recent years as an indicator of a country's sustainability. According to some theorists (e.g. Arrow et al., 2012), under certain conditions a country with a positive level of GS should experience non-declining future utility, given the assumption of unlimited substitutability among all forms of capital (sometimes called {"}weak{"} sustainability). This paper reports the first very long-run tests of GS (also called comprehensive investment or adjusted net savings) as a forward-looking indicator of future well-being. We assemble data for British capital back to 1765, and construct several net investment measures which are used as indicators of two alternative measures of future well-being: consumption per capita and real wages. An allowance for a {"}value of time{"} due to exogenous technological progress is included in some GS measures, and we demonstrate the importance of this measure and the choice of discount rate over the very long-run. On the whole, our results do not reject the postulated relationship between GS and future well-being, and show GS can be a forward looking indicator of future well-being for periods of up to 100 years.",

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AU - Hanley, N.

AU - Kunnas, J.

AU - McLaughlin, E.

AU - Oxley, L.

AU - Warde, P.

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AB - Genuine Savings (GS) have been much used in recent years as an indicator of a country's sustainability. According to some theorists (e.g. Arrow et al., 2012), under certain conditions a country with a positive level of GS should experience non-declining future utility, given the assumption of unlimited substitutability among all forms of capital (sometimes called "weak" sustainability). This paper reports the first very long-run tests of GS (also called comprehensive investment or adjusted net savings) as a forward-looking indicator of future well-being. We assemble data for British capital back to 1765, and construct several net investment measures which are used as indicators of two alternative measures of future well-being: consumption per capita and real wages. An allowance for a "value of time" due to exogenous technological progress is included in some GS measures, and we demonstrate the importance of this measure and the choice of discount rate over the very long-run. On the whole, our results do not reject the postulated relationship between GS and future well-being, and show GS can be a forward looking indicator of future well-being for periods of up to 100 years.

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Testing genuine savings as a forward-looking indicator of future well-being over the (very) long-run

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