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Incorporating Resilience in the Assessment of Inclusive Wealth: An Example from South East Australia

Brian Walker, Leonie Pearson, Michael Harris, Karl-Göran Maler, Chuan-Zhong Li, Reinette Biggs and Tim Baynes. Environ Resource Econ (2010) 45:183–202

Abstract:

This paper explores the consequences of changes in a system’s resilience on the sustainability of resource allocation decisions, asmeasured by InclusiveWealth (IW) (Arrow et al. in Environ Resour Econ 26:647–685, 2003). We incorporate an estimate of resilience in IW by taking account of known or suspected thresholds that can lead to irreversible (or practically irreversible) changes in the productivity and value of assets and hence social welfare. These thresholds allow us to identify policies or projects that may be leading to an increased risk of decline in capital stocks (the wealth of the region). Such risks are not reflected through usualmeasures of current system performance, e.g. agricultural production. We use the Goulburn-Broken Catchment in south-eastern Australia as a case study to explore the significance and practicality of including resilience in inclusive wealth estimates.

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Keywords: Inclusive wealth, Resilience, Shadow prices, Sustainable development

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