Can net national product (NNP) truly measure social well-being? This paper critically examines the meaning and appropriate uses of NNP, arguing that it's often misapplied in intertemporal and cross-country comparisons of social well-being. While NNP can be valuable for evaluating economic policies, the authors contend that it should not be used for assessing societal progress over time or across different nations. Instead, the authors propose alternative indices better suited for these comparisons, emphasizing the importance of wealth as a key indicator of welfare. The analysis extends beyond economies with optimal policies, considering scenarios where governments can only implement policy reforms. This generalization allows for the evaluation of policy reforms, even in the presence of non-convexities. The findings challenge the common interpretation of NNP as 'constant-equivalent consumption,' asserting that the Hamiltonian, not NNP, accurately reflects constant-equivalent utility. Given the Hamiltonian's nonlinear relationship with consumption and leisure, the paper cautions against conflating it with NNP. This study offers valuable insights for policymakers and economists seeking more accurate measures of social well-being and effective evaluation of economic policies.
Published in Environment and Development Economics, this paper aligns with the journal's focus on the intersection of environmental issues and economic development. By analyzing the limitations of NNP as a measure of social well-being and proposing alternative indices, the study contributes to the ongoing discussion of sustainable economic indicators, fitting squarely within the journal's scope.