Thomas Ahrens Ph.D., is a Senior Lecturer in Accounting at the London School of
Economics where he has been working since 1996. His research is mostly qualitative.
It is broadly concerned with accounting and organisational process. Thomas has
compared management accounting practices in contemporary British and German firms
and studied the uses of performance measurement systems in a large U.K. restaurant
chain. He has also written on comparative and case study research in accounting.
Thomas’ latest research project is investigating performance measurement in British and
In contemporary debates about democratic governance, the concept of
accountability is hard to avoid. At least from a European perspective, recent
innovations in political and administrative decision-making have multiplied
opportunities for citizens to hold to account those who exercise governmental
authority. Or so we are told. Whether busy modernizing constitutional
structures or realigning public services along market-led lines, our political
representatives have proclaimed a new era of open and responsive government.
Regulators to date have opted for a relatively "non-interventionist" approach to
environmental accounting reform. The U.S. Environmental Protection Agency, for instance,
through surveys and case studies, has identified weaknesses in private sector environmental
accounting and promotes the diffusion of accounting "best practices." This outreach- and
communication-based approach may be expanded upon in the future, however. There
currently are calls from some environmental advocates for more aggressive regulatory actions
in this area, such as mandated environmental accounting.
· Select an institution to carry out the initial accounting work. While in the long run
environmental accounts are likely to come under the purview of those responsible for
national accounting, often those groups are unwilling to initiate the work because it is
perceived as too experimental. Instead, initial work may be carried out by environment
departments, government-affiliated research groups, or other players who have a strong
stake in the outcome but take less risk by putting their name on experimental work.
This third edition retains the range of analytical techniques and the structure
of individual chapters of the second edition. However, there are some
significant changes, with the introduction of new topics and some deletions,
to take into account the changing priorities in environmental analysis.
This text has been written primarily for the specialist market of second and third year undergraduate and post-graduate students of economics. The clear explanations and basic principles that underpin the text, however, make it readily accessible to non-economists coming to environmental economics from diverse programmes of study.
Natural Resource and Environmental Economics is among the leading textbooks in its field.
The last quarter-century has seen increasing awareness of
the interactions between human societies and the natural
environment in which they thrive and upon which they
depend. This awareness has been heightened by concerns
about resource scarcity, environmental degradation, and
global environmental issues. The combination of increased
awareness of the environment and recognition of the
primitive state of much of the nation’s environmental data has led to a
widespread desire to supplement U.S. national economic accounts to include
natural resources and environmental assets.
Some twenty five countries have experimented with environmental accounting over the
past twenty years. A few European countries have established physical accounting
systems which are routinely compiled and applied to economic and environmental
policy-making. Many other countries have undertaken more limited or one-time
experiments and case studies with monetary environmental accounts, focused on issues
such as forestry, soil erosion, and minerals depletion. A few examples suggest the
richness of their experience.
For new information to be valuable it must, of course, actually be new information. If
new cost estimation or accounting procedures simply confirm existing beliefs, they have little
likelihood of contributing to changes in decision-making, and thus little likelihood of adding
value. Environmental accounting techniques will be most valuable when they correct beliefs
that are biased or when they focus on issues subject to high degrees of uncertainty.
A focus in much of the environmental accounting literature is on the failure to quantify
environmental benefits and costs.
If green accounting is to be taken seriously, the accounts must not be only concerned with
the ways in which services are weighted (the missing prices problem) but also with the definition
of services themselves. Moreover, it is desirable to define ecosystem service units in a way that
is methodologically and economically consistent with the definition of goods and services used
in the conventional income accounts.
All of this highlights the desirability of a framework that will identify priorities for
improved environmental accounting. This paper derives such a framework by exploring the
determinants of the value of information in a corporate decision-making context. The paper
proceeds as follows. The next section defines environmental accounting and the meaning of
"improved" information, and discusses the costs associated with those improvements. Section 3
describes the economic value of information in general terms.
Environmental accounting information need not be the product of accountants, nor
need it be used by accountants. Instead, it is any information with either explicit or implicit
financial content that is used as an input to a firm's decision-making. Product designers,
financial analysts, and facility managers are equally likely to be the users of environmental
accounting data. Almost any type of information collected and analyzed by firms will
The framework presented above outlines a method by that can be applied to the
evaluation of the benefits of improved environmental accounting. In this section we apply the
framework more formally and to a specific form of decision-making. In this decision-making
setting managers must make an optimizing decision based on incomplete information,
information that could be improved at some cost by better accounting data or procedures.
The paper proceeds as follows. First, we demonstrate the public policy demand for
standardized units of ecosystem measurement. Second, we advance and defend an economic
definition of units of account. Third, we contrast this definition with existing definitions of
services and environmental accounting units. Fourth, we concretely illustrate our definition via
an inventory of measurable ecosystem services.
Why is the market share of accounting measures shrinking,
and can cross-sectional differences in the extent of shrinkage be
explained? Has the information content of accounting
information itself deteriorated, or should we look to more
fundamental changes in the economic environment? For
example, Milliron (2000) documents a significant shift over the
past twenty years in board characteristics measuring director
accountability, independence, and effectiveness consistent with
a general increase in directors’ incentive alignment with
A major component of liquidity is adverse selection costs,
which are reflected in the bid-ask spread and market impact
costs. Firms’ precommitment to the timely disclosure of high-
quality financial accounting information reduces investors’
risk of loss from trading with more informed investors, thereby
attracting more funds into the capital markets, lowering
investors’ liquidity risk (see Diamond and Verrecchia ,
Botosan , Brennan and Tamarowski , and Leuz
and Verrecchia ).
Omission of minerals is just one of the issues
addressed in the construction of environmental
accounts. Still, extending the nipa to include
minerals is a natural starting point for the project
of environmental accounting. These assets—
which include notably petroleum, natural gas,
coal, and nonfuel minerals—are already part of
the market economy and have important links to
environmental policy. Indeed, production from
these assets is already included in the nation’s
gross domestic product (gdp).
Stereotypical accountants – depicted tirelessly in literature and cinema – hunch lifelessly over
their desks adding and subtracting endless columns of numbers. It is a dismal job held by nameless,
glassy-eyed hordes. While these fictional portrayals were never accurate, the focus on numbers
carries more than a grain of truth. Traditionally, accountants kept the books and assured that statutory
requirements were met.
· Net benefit vs. user cost method of calculating depletion. These are two different
methods for estimating the depletion of natural capital. The net benefit method is much
simpler than the user cost method, and therefore has been used widely. It is considered
technically incorrect by economists; however, those who use it feel that despite its
inaccuracy it offers an acceptable proxy value for depletion.
· Inclusion of "maintenance costs." Maintenance costs are the expenditures that a country
would have to make in order for its use of the environment to be sustainable.
· Disaggregated regional or local data about the environment, sometimes linked to a
geographic information system. Questions often arise about the scale of environmental
data; do they pertain to a village, a province, a watershed, or the whole country? Because
the SNA is national, and most countries maintain their economic data at the national
(rather than the regional or local) level, environmental accounts are primarily national
accounts. For example, they might tell us how much energy was consumed nationwide,
not how much was consumed in each village or province.