Wealth measurement beyond GDP – the integration of environmental costs and alternative measures of welfare into economic models

The criticism of the central messages of macroeconomic models, especially in connection with the prognostic calculation of economic growth, is so far without consequences. The focus on gross domestic product (GDP) has not changed despite the development of various alternative measures of welfare and their empirical application. New models for the integration of until now externalized environmental costs in the area of economic consulting and political decisions are largely ignored.

On behalf of the Federal Environmental Agency, adelphi and its project partners analyzed how environmental costs and alternative welfare measures can be integrated into prevailing models. The project examined the range of existing environmental indicators and welfare indices to determine if and how they can be used within selected economic models to increase their validity. The aim was to present an economic policy narrative that properly considers both the quantity of money flows in an economy and the quality of prosperity and environmental needs. An essential aspect of the project was bringing together different actors to initiate a discourse on the gaps in previously used economic models.

The project consortium was led by the Institute for Interdisciplinary Research (FEST). adelphi classified, analysed and compiled an inventory of economic models that are used nationally and internationally for social and political decision-making and have a high level of public awareness. In order to achieve a better understanding of the models, adelphi conducted interviews with developers of models. In addition, adelphi organised an international expert workshop where developers and users of models were able to discuss options and starting points for better incorporating environmental and welfare-related indicators into the modelling process.