Adjusted net savings and other approaches to sustainability: some theoretical background

The Stiglitz report on the measurement of economic performance and social progress has been recently released. Part of this report is devoted to the issue of measuring sustainability. One of the sustainability indexes it considers is the concept of adjusted net savings (ANS). Compared to other indexes, it has the advantage of being truly concentrated on measuring sustainability stricto sensu, avoiding a frequent confusion between the measurement of sustainability and the measurement of current well-being. It also relies on an explicit accounting framework, and it includes all potential dimensions of global sustainability: physical and human capital accumulation, as well as changes in quantities or quality of environmental assets. But the major stumbling block is the definition of prices that are needed for valuing these different groups of assets. In a context of notoriously imperfect markets, these prices cannot be observed. They have to be imputed. This paper recalls what are the theoretical requirements for this imputation, and that they are quite strong: what is needed is no less than a full model projecting long term interactions between the economy and the environment. We use this observation as a point of departure for explaining why consensus on sustainability measurement is so difficult to reach, and how this argues in favor of more eclectic approaches mixing the ANS with some complementary indicators focusing on environmental issues.