The costs of social and environmental degradation in affluent economies

Slater, Giulia and Sarracino, Francesco (2025): The costs of social and environmental degradation in affluent economies.

Abstract

IIndividuals’ attempts to defend from the deterioration of common goods, such as natural and social capital, stimulate defensive growth, that is new economic activity driven by private solutions to collective problems. In this paper, we provide an estimate of the value of defensive expenditures - the individual consumption needed to protect subjective well-being against collective problems - using a compensating differentials approach; that is we estimate the monetary valuation of social and environmental disruption for which no market price exists. To do so, we conduct a regression analysis of life satisfaction on aggregate consumption levels and various social and environmental externalities (which we refer to as "bads"). Our estimates indicate that the consumption needed to defend against collective problems is worth nearly a quarter of actual individual consumption. In terms of national income, this is equivalent to nearly half Gross Domestic Product per capita in affluent economies. Defensive consumption stimulates economic growth, however, in so far as the equivalent of nearly half of growth is defensive, its expansion does not reflect true progress.

• Item Type: MPRA Paper
• Language: English
• Keywords: subjective well-being, quality of life, defensive consumption, defensive growth, compensating differentials, shadow value, willingness to accept
• Subjects: I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; P - Economic Systems > P0 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q50 - General; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects

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