Net national product

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Net national product

Posted on May 17, by Adam Bailey National product, measured net of a deduction for depletion of natural resources, can in certain conditions provide some indication of whether current consumption is sustainable.

But the conditions are stringent, and even when they are met, other indicators may perform better. Against a background of mass unemployment and then World War II, the debate was won by those who wanted the former 1.

To this day, GNP as calculated in most countries remains a measure of activity and output, and as many critics have pointed out it is easy to find examples of activities which raise GNP but do not enhance and may even lower welfare.

It has always been recognised that net national product NNPwhich equals GNP less an allowance for depreciation of capital assets due to wear and tear, is in some ways a more meaningful measure, and most countries publish estimates of NNP as well as GNP.

Nevertheless, most economic discussion focuses on gross aggregates, including GDP gross domestic product, which is similar to GNP but excludes certain international income Net national product. This seems to be partly because of the short-term link between activity and employment, and partly because of difficulties — both conceptual and practical — in measuring depreciation 2.

Much of the academic literature on this topic stems from a paper published by Weitzman in 4. To understand what Weitzman did, we need some definitions. Given a long-term model including assumptions about the rates of investment in man-made capital and of extraction and use of a non-renewable resource, together with initial quantities of capital and the resource, we can infer the time paths of the variables, including the rate of consumption.

Generally the rate of consumption will vary over time. Given also a discount rate, we can find the present value of the implied stream of consumption. We can also find the shadow price of an input by finding how much that present value increases if the initial quantity of the input is increased by one unit.


Whatever the present value of the consumption stream may be, there must exist a rate of consumption which, if maintained constant forever, has the same present value. Weitzman calls this the stationary equivalent of future consumption others have called it, more conveniently, constant-equivalent consumption.

Finally, by properly calculated NNP we mean consumption plus or minus adjustments for any change in man-made capital and any depletion of the resource, valued at their respective shadow prices.

How exactly does this relate to sustainability, taken here to mean the possibility of maintaining consumption indefinitely at a given rate?

Constant-equivalent consumption, after all, is merely a mathematical construct: Moreover, it is a construct that depends on the discount rate, whereas the feasibility of constant consumption at a given rate will depend on the production function and initial quantities of inputs, but should have nothing to do with the discount rate.

Net national product

The link can be made as follows. For a given model and given initial values, let OC r be the feasible consumption stream with optimal present value PVOC r at discount rate r. Importantly, the argument does not depend on the value of r.

If correct, therefore, it implies the following partial sustainability indicator to be understood in the context of a model as outlined above: It is a merit of this indicator that it does not rely on a single discount rate.

Thus it avoids the need to address the vexed question of what is the appropriate discount rate, if any, to apply to the welfare of future generations. An important limitation however is that its application requires identification of optimal time paths, not just of consumption but also of capital and the resource, in order to obtain the correct shadow prices and properly calculate NNP.

This implies a discrete approach, with some ad hoc devices to avoid circular dependencies, and therefore with results only approximating to those of a continuous time model.

The assumptions of my model were: Output of a single good which can be either consumed or invested as man-made capital.

Net national product

Constant population, labour and technology. No depreciation of man-made capital. An exogenous discount rate, unrelated given no assumption of a competitive economy to the marginal product of capital. The model is admittedly a gross simplification of any real economy: Although in principle the time horizon was infinity, the time paths of the variables were calculated for 5, years, the present value of consumption beyond that date even at 0.

Optimal time paths were found by judicious trial and error in respect of use of the resource in the first period and allocation of output between consumption and investment, together with application of the Hotelling rule an intertemporal efficiency condition for use of the resource after the first period.

To find the initial shadow price of capital, the optimal time paths were also found on the assumption of one extra unit of initial capital ie units of K and units of S.

The shadow price in terms of the present value of consumption as numeraire was then calculated as the difference between the optimal present value of consumption given units of K and that given units. The initial shadow price of the resource was found similarly. The results are set out in Table 1 below.

It can be seen from Table 1 that NNP at each discount rate exceeds maximum constant consumption. Thus the results are consistent with Sustainability Indicator 1. The reason, in simple terms, is that the proof in his paper assumes that the time paths of the variables are smooth differentiable curves 9.Although the net national product is a key identity in national accounting, its use in economics research is generally superseded by the use of the gross domestic or national product as a measure of national income, a preference which has been historically a contentious topic.

Total Quality Management is the dedicated effort to providing a continuously-increasing level of quality in an effort to retain the attention (and repeat business) of your customers. Net national product (NNP) refers to gross national product (GNP), i.e.

the total market value of all final goods and services produced by the factors of production of a country or other polity during a given time period, minus depreciation.

Grade (of product or service)

Gross National Product. GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country.

Mar 02,  · Net National Product (NNP) is National Income plus or minus the statistical discrepancy that accumulates when aggregating data from millions of individual reports.

In this case, the statistical discrepancy is US$ billion, or about % of Gross Domestic Resolved. Aug 07,  · Net national product (NNP) refers to gross national product (GNP), i.e.

the total market value of all final goods and services produced by the factors of production of a country or other polity during a given time period, minus depreciation. Similarly, net domestic product (NDP) corresponds to gross domestic product (GDP) minus depreciation.

Net National Product and National Income, by Sector | FRASER | St. Louis Fed