Introduction

This chapter analyzes two issues in the measurement of sustainable development. The first is revising national income accounting to better reflect interactions between economic and environmental systems. The second is the empirical evidence supporting the inverted U hypothesis, which purportedly links environmental indices to per capita income.

Before starting, it is useful to reemphasize that with its multiple and often ambiguous definitions, sustainable development defies measure by a single index. As noted in the previous chapter, even a limited requirement for sustainable development, such as maintaining the stock of natural capital, confronts formidable measurement difficulties: Is the stock to be measured in physical or value units? Over what geographic or political unit is the stock to be maintained? How can depletion or degradation of one form of natural capital, say, biological diversity, be made commensurate with improvements in, say, air quality? Even more fundamentally, if natural capital is valued by the flow of income it generates, how is that flow to be discounted?

Less ambitious attempts to measure aspects of sustainable development can, however, contribute to improved public policy. A preliminary step involves collecting better primary data on the quantity and quality of environmental resource stocks and flows, monetizing these data when feasible, and constructing physical and monetary indices. The results can be used directly for resource management and policy and for testing theoretical propositions linking economic and environmental systems.