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Accounting for Traditional Fuel Production: The Household Energy Sector and Its
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- /Y9 7
Internal Dor oments
WORKINGPAI
INDUSTRYAND ENERGYDEPARTMENT Unlt
ENERGYSERIESPAPERNo. 49 _.-

Accountingfor TraditionalFuel
Production:The HouseholdEnergy
Public Disclosure Authorized

Sectorand its Implications

for the Development Process F

March 1992
Public Disclosure Authorized

=~~~~~~~~~~~~~~~~~~~~~~~
Public Disclosure Authorized

The World Bank Industryand EnergyDepartment.PRE

 Accountingfor TraditionalFuel Production:
The HouseholdEnergySectorand
Its implicationsfor the Development Process

prepared by

Henry M. Peskin, Willem Floor, and Douglas F. Barnes

Industry and Energy Department
Operations Division
The World Bank

March 1992

Copyright (c) 1992

The World Bank
1818 H. Street, N.W.
Washington, D.C. 20433
U.S.A.

This paper is one of a seiles issued by the Industry and Energy Department for
the information and guidance of World Bank staff. The paper may not be
published or quoted as representing the views of the World Bank Group, nor
does the Bank Group accept responsibility for its accuracy and coit.pleteness.
 Abstract
A fundamentalproposition of modem economicsis that to the extent that
the prices of goods and services are establistied through exchanges in well-functioning
markets, efficient allocationsare likely. Conversely, if there are no markets for certain
goods and services, allocations may be inefficient for not only the nonmarketed goods
but also for marketed goods that m y be substitutes for these goods. l'o the extent
that economic development takes place with inefficient allocations, then the full
potential for growth in societal well being will not be realized. The notion that GNP
does not accurately reflect production in poor developing countries has widespread
acceptance. The problem of under-measuringnational production has been well known
for decades. Instead of trying to account for the many areas of informal trade and
production, we have taken the approach in this paper to focus on fuelwood production,
In developing countries, the large portion of fuelwood consumed in households and the
household labor that is used to collest this fuelwood meet the definition of nonmarketed
goods and services. As expected from economic theory, there is evidence of inefficient
allocations. Policy makers in certain instances can be misled by the notions that large
infrastructureprojects are superiorto moie mundaneprojects that may deal with informal
household production. One of the most important contributionsof including household
production in the national accounts is not only that the value of household production
is more accurately reflected in economic accounts, but the fit. .nat the effect of
developmentcan be more fully measured. Such a framework is essential for evaluating
the benefits of energy projects, especially in poor developing countries where informal
productionis a large component of economic activity.
 Table of Contents

L Introduction 1
II. The EconomicImportanceof the FuelwoodSector 3
m. A Model of HouseholdFuelwood Productionand Economic Interaction 7
IV. HouseholdProduction in the Context of an Expanded
National AccountingSystem 9
V. ImplementationStrategiesand Data Needs 15
Sectoring and aggregation 16
Developing input-output information 16
Developing household information 16
VI Applicationsof the Accounting Scheme to Tanzania 17
VIL Summary and Conclusions 22
References 24
Appendix A: The FuelwoodProduction Model 27

r'ABLES
Table 1: Energy Balance,Income and TraditionalFuel Use in Selected Developing
Countries 4
Table2: Energy Loans by Energy Sector for the World Bank 6

FIGURES
Figure 1: ModifiedNational Income and Product Accounts 11
Figure 2: ConventionalGDP Accountsfor Tanzania, 1980 18
Figure 3: ModifiedGDP Accountsfor Tanzania,1980 21
 ACCOUNTING FOR TRADITIONALFUEL PRODUCTION:
THE HOUSEHOLD ENERGY SECTOR AND ITS IMPLICATIONS FOR THE
DEVELOPMENT PROCESS
Henry M. Peskin,WillemFloor,and DouglasF. Barnes

I. Introduction

1.1 A fundamental proposition of modern economics is that to the extent that

the prices of goods and services are established through exchanges in well-functioning
markets, efficient allocations are likely. Conversely, if there are no markets for certain
goods and services, allocationsmay be inefficient for not only the non marketed goods
but also for marketed goods that may be substitutes for these goods. To the extent
that economic development takes place with inefficient allocations, then the full
potential for growth in societal well being will not be realized.
1.2 In developing countries, the large portion of fuelwood consumed in
households and the household labor that is used to collect this fuelwood meet the
definition of non marketed goods and services. As expected from economic theory,
there is evidenceof inefficient allocations.Under certain conditions,the lack of a market
price for fuelwood has led to excessive depletion of an apparent "free" good, fuelwood
shortages,ecological damage,diversionof labor from valuableagriculturalactivities, and
an inefficient mix of fuels and energy sources to satisfy the energy needs of a growing
economy. This is especially the case in regions that are undergoing a transition from
abundant biomass supplies from local woodlands to conditions of greater scarcity.
During this transition, the depletion value of these scarce resources rise, but because the
wood resources are used directly by households and are not marketed, their value does
not show up in most national accounts.
1.3 The shortcomirgs of traditional accounting methods for including informal
productionin the measurementof Gross National Product (GNP) are fairly well known.
When a woman enters the workforce, not only is her production added to the output
side of the accounts, but so is the value of her children's daycare. On the debit side of
the accounts, nothing is subtracted since the child care was previously uncounted,
informal household production. For developing countries, the movement from
traditional fuels to modem fuels is plagued by similar accounting difficulties. When a
family moves from traditional fuels to modem fuels, the use of modern fuels appears as
added consumption in the accounts, but nothing is entered on the debit side since the
former productionof traditionalfuel frequentlyinvolvedinformal labor.
1.4 The consequence of not having adequate figures on the informal
productionis that the effects of misallocationsand inefficienciescaused by the lack of a
market price for fuelwood may be obscured from the eyes of policy makers. The only
manifestations of misallocations that may be visible are weaknesses in growth rates,
unexplained labor shortages, or unexpected changes in prices for marketed energy
substitutes. For instance, in a situation in which fuelwood has become very scarce, a
 -2-
policy to encourage substitution by other fuels may fail because the price of these fuels
may exce' d the unobserved time cost of alternatives fuels, such as straw or dung.
Likewise,a policy to promote the growingof trees for fuelwood around homesteadsin a
region with abundant wood resources is not likely to succeed if the perceived value of
labor spent collecting fuel is far below the value of the trees grown. Finally, for a
country in which many people were originally dependent on fuelwood collection for
obtaining fuel for cooking, the level of economic growth may be overstated as people
switch to marketed fuels. As a result, policy makers may be unable to appreciate the full
consequencesof both sector-specificprojects and macro-economicpolicy initiatives.1

1.5 The purpose of this paper is to develop a methodology for including

production of fuelwood in the national accounts. The reason why this is important is
not just for making the national accounts more accurate, but more importantly, to
improve the ability of policy makers to make better management decisions concerning
the economy. We realize that fuelwood production is not distinct from other informal
productive activities, which should also be incorporated into national accounting
schemes. However, in this paper we focus on fuelwood production only because it is
one of the important informal, productive activities that does not appear in the national
accounts.

1.6 This report discusses the problems that may arise for,: -velopingcountries
if the economic importanceof the fuelwoodsector is ignored. A m'c& is developed that
will help in the analysis of how this sector interacts with other marketed activities (see
Appendix A for details), such as agricultural production, and how the sector may be
affected by general economic policies. The report indicates how these interactions can
be reflected in the euviomic accounts with suitable modifications. Next, the paper
specifies the data needed to support both the empirical modeling of the interactions and
the modified accounts. One brief case study is presented with the objective of
illustrating the modified accounting structure and modeling specilfc interactions of the
fuelwood sector with other economic sectors. Finally, the report will highlight the
practical policy implications for planners and project designers that can be drawn from
the above analyses and case studies.

I The relatve benefitsand costs of developmentprojectsmay be misspecifiedas well. For example,the true
economicor opportunitycosts of a labor-dependentproject may be understatedto the extent that the required
labor is divertedfrom nonmarketfuelwoodproducdonand other nonmarkethouseholdactivities. Conversely,
if the project under analysis is labor saving, the benefitsof the project may be understatedto the extent that
this labor has a positive but non-observable(nonmarket)opportunitycost. For a discussionof the role of
labor oppormuitycost in the evaluadonof the benefitsof labor-savingprojects,see Schramm(1988).
 IL The Economic Importance of the Fuelwood Sector

2.1 The fuelwood sector, as is other conventional,marketed economic sectors,

can affect general and specific economic activity in two principal ways. In the first
place, outputs of this sector can compete with or compliment other economic sectors.
There is, for example, obvious product competition between non marketed fuelwood
and marketed energy sources such as kerosene or charcoal that fulfill household needs.
Presumably, if fuelwood really had the zero price one observes, it would out-compete
any other alternative source of fuel and would probably account for even a much larger
percentage of household energy consumption than the current 80 percent for poor
developingcountries, limited only by the technical inability of fuelwood to meet certain J
needs such as lighting. The fact that fuelwood does not out-compete all potential
substitutes indicates that the true or "shadow" price of fuelwood is certainly greater
than zero.

2.2 The examination of certain unique features underlying the fuelwood

problem in developing countries is essential to the understanding of its scope and
nature. First, the level of energy demand by developing countries is low, which reflects
their low level of per capita national incomes(see Table 1 and OTA, 1991). Secondly,a
high level of total energy use goes to meet household energy needs, especially in low
income countries. For such low income countries between70-90% of total final demand
is attributableto household use. In middle income countries the comparable percentage
is between 40-60%. Most householdsuse energy primarily to meet cooking needs, with
less used for space heating and lighting. Energy use for other purposes increases only
when household income levels rise so that kerosene, LPG and electricity become viable
alternatives. Poor urban households that purchase their energy supplies sometimes use
as much as one fifth of their income for this purpose (Barnes and Qian, 1991). When
fuelwood becomes scarce in rural areas, straw and stalk often are substituted for
fuelwood rather than modern alternatives, mainly because there is no cash outlay for
these substitutes. Even in oil-exnorting LDCs, biomass use for energy plays an
importantrole, for the householdsector.
2.3 A portion of the value of biomass energy is reflected formally in the
commercial wood trade, which is monetized and thus reflected in some country's
national accounts. But typically, the economic value of even commercialbiemass fuels
is ignored or undervalued by national governments (see UNDP/World Bank reports).
For example, the annual value of the wood fuel trade in many countries is significant,
and sometimeshigher than that of the power sector or tropical timber exports for a given
country. For instance, in the six countries constituting Central America, where 86% of
the urban population consumes firewood, the firewood trade has an annual value of
US$150 million, which was half the value of the entire power sector in that region i:
1985 (CEPAL, 1987). In Mali, where the annual value of the wood fuel trade is 10
billion FCFA ($30 million),the use of householdpetroleumproducts accountedfor only
3-4 billion FCFA/year, and the value of electricity consumed in households was 4-5
billion FCFA in 1988. In the Central African Republic, the annual value of the wood
trade amounts to FCFA 7 billion, as compared with FCFA 5 billion for tropical
hardwoods. The value of trade in petroleum and electricity is FCFA 1 billion and 3
 -4-
billion respectively, highlighting the economic i.mportance of the fuelwood trade
(UNDP/WorldBank, 1991d,p. 30).

Table 1: Energy Balance, Income: r d Traditional Fuel Use In Selkcted Developing Countries

Low Income GNPper Capite Urban Popula- Consumption Consumption of Tota Energy Share of Tradi-
Countries 1987(S) tion as Shareof of Tradisional Commercial Consumptionper sionalFuels in
Total1987(%) Fuelsper capitsFuels per capita Capita1986 (GJ) Total 1986(%)
1986(GJ) 1986(CJ)
Zaire 150 38 8.68 3.01 11.69 74
Madagascar 210 23 5.87 1.19 7.06 83
Rwanda 300 7 8.59 1.25 9.84 87
Haiti 360 29 9.51 1.80 11.31 84
Indonesia 450 27 7.70 8.47 16.17 48
. - n% 290 38 7.69 25.35 33.04 23
300 27 3.01 8.34 11.36 27
;ia 580 59 2.39 10.90 13.28 18
c J !voire 740 44 7.57 6.76 14.32 53
Camieroon 970 46 8.53 9.91 18.44 46
Peru 1,470 69 4.16 19.21 23.37 18
Brazil 2,020 75 17.82 32.76 50.58 35
Venezuela 3,230 83 1.26 106.17 107.43 1
Germany,Fed. Rep. X,400 86 0.60 185.39 186.00 0
United States '4,530 74 4.88 305.11 310.00 1

Source: OTA, 1991

Note: GJ stands for Gigajoule;ihina figuresfrom Wang, 1988.

2.4 In many situations,the continued use of non market biomass fuels may be
very much in the national interest, saving desperately needed foreign exchange. A few
hypothetical examples illustrate this point. Converting all households to modem fuels
would increase the oil import bill to levels which many devielopingcountries could not
afford. Fuelwood consumptionin the developingcountries is about 1.070 million TOE,
of which 80% is used for cooking. The amount of kerosene or charcoal required to
replace this consumption of fuelwood would be about 245 million TOE. If kerosene
were the preferred substitute, this would increase world demand for oil by 9% and
devloping countries demand by 31 percent. Taking only urban demand (about 1/3 of
total demand),then 80 million TOE would be required, a 10% increasein oil demand by
developing countries. Of course this is a hypotheticalexampic and the actual situation
is much more complex than this, but at least it illustrates the problems that might be
caused by the under valuation of traditional fuels in the national accounts.
 - -
2.5 Employmentin sectors that closely compete with fuelwood provides rnuch
needed income for the urban and sometimes even the rural poor. Some examples
illustrate the importance of the employment generated by these substitutes for selected
countries. The charcoal trade offers emp!oyment to 67,000 people in Haiti alone
(UNDP/WorldBank, 1991g,p. 37). In Niger, the firewood trade employs 5,000 persons
(UNDP/WorldBank, 1988, p. 6), and in Cameroon3),000 persons (UNDP/WorldBank,
1991c,p. 16), while the commercialwood fuel trade offers full-timeemploymentto some
50,000 persons in Zambia (UNDP/World Bank, 1990h, p. 35). Also, the wages in the
commercialbiomass sector can be more remunerativethan an urbanjob for an unskilled
laborer, thus acting as an incentive to stay in the rural areas rather than to migrate. For
example, wood cutters in Burkina Faso can earn about FCFA500,000 per year
(UNDP/WorldBank, 1991a,Annex X), while an unskilled laborer in Ouagadougouonly
gets FCFA100,000.
2.6 Anothermajor influenceof the traditionalfuels sector on general economic
activity results from factor competition. Household fuelwood production is a time-
consuming and tiring activity that competes for labor services that could be applied to
other activities, both marketed and non marketed. It should be kept in mind that the
potential diversion from other labor uses may be greater than is reflected by the number
of hours per week devoted to fuelwood gathering. If a person is engaged in fuelwood
gathering for one or two hours every other day, that person is not available for jobs
that require a week's continual presence at a specific location. The economic effect of
this factor competition is to increase opportunity cost, of activities that compete for the
labor. Treating fuelwood-gatheringlabor as under employed or "free" means that the
true costs of competing activities will be underestimated (see Rosenzweig, 1984). If
these competing activities are, for example, development projects, the undervaluing of
fuelwood gatheringlabor implies an over-valuationof these projects.
2.7 Despite these important effects on production, foreign exchange,
employment, and factor substitution, the commercial biomass sector is often times
overlooked when one lists a country's productive assets. For example, in Mali and
Burundi, the power sector absorbs 10% of public funds to serve only 1% of final
demand. By contrast, the biomass sector gets 0.01% of public funds, but serves 95% of
final energy demand (UNDP/World Bank, 1991b, 1991f). This is not to say that the
capital intensive power sector does not deserve to get a significant amount of public
funds, but rather it is to emphasizethat the biomass sector is really not even considered
as appropriate for financing, perhaps because it does not appear in the national
accounts.
2.8 Althoughthe economic size of just the commercialwood product sector is
rather significant, the non-traded, non-monetized part of the biomass sector is even
larger than the commercialone. Becausethe value of non marketedenergy productionis
not normally shown in the national accounts, there is an imbalance in political interest
shown by governments and donors between the modem energy sector (power, oil, gas)
and the traditional biofuels energy sector, as is clearly evident in any examination of
lending by the multilateral banks. The technical support to the household energy sector
is very small. This imbalance can translate itself into a neglect of the sector to the
detriment of the national economy in general, and of the rural and urban poor
populations,in particular. The time of women and children are particularly affected by
 -6 -
the fuelwood trade and production, because they are the ones who collect and use the
fuels. Women's time is importantbecause, vaomenconstitute 40% cf agriculturallabour
in Asia and sub-Saharan Africa. As can be seen from Table 2, the opportunity cost of
women's time can be quite higb. Fuel collection and food preparation can take up as
many as 5 hours per day. The more time that has to be spent on fuel collection the less
time will be available for other vital economic tasks. Because children share in these
tasks, their school attendance may be negatively effected as well as their general
development.

Table 2. Rural Women and the End-use of Their Time

(Hours per day)

Country Agriciltural Non-Agricultural FotelCollection Cooking Other

Work Work
Indonesia
Irrigatedvillages 29 0.2 1.5 6.9 11.5
Upland villages 3.1 0.5 2.4 6 12

India
(Average5 villages) 3.9 4 4.8 0.9 13.6

Ohmna
Savannahvillages 13 2.7 5 5 14
Fishingvillages 2 63 3.6 2.1 14
Forestvillages 3.8 03 4.1 5.8 14

Mozambique
(Average4 villages) 3.1 0.1 1.8 9 14

Peru
Coastaldesert 1A 2 2.2 5.6 11.2
'ierra 4 1 3.8 2.4 11.2
High Sierra 4 2 2.9 2.8 11.7

S urce: Cecelski, 1987

2.9 The crucial point , made here is not only that fuelwood production is
undervalued, but that it goes L._koticedby government policy makers even though it
may play a significantrole within the larger economy. As can be discernedfrom Table 1,
with economic growth traditional fuel use plays less of a formal role in the economy as
all kinds of other activities grow. Also, the value of fuelwood depends on the supply
and demand for fuelwood and other wood products. For rational policy-making, the
tradeoffs between using traditional and modem fuels by households needs to be placed
in a more conventionaleconomic framework. To atcomplish this end, we next present a
model of household fuelwood production.
 III. Household Fuelwood Production and Economic Interaction
3.1 The household fuelwood production model presented in Appendix A
serves to illustrate the basic point that househc'd fuelwood production is inherently
linked to all other economic activity. The linkageis not simply in one direction:general
economic activity affects household fuelwoodproduction (through the effects on prices
and wages) and household fuelwood productionaffects general economic activity. The
latter influence is due to the effect that household fuelwood productionis likely to have
on the general demand for goods and services and on the supply of labor available for
non-household production.2 For example, to the extent tht labor is devoted to
household fuelwood production, it may not be availat 'or market agricultural
production. Thus, increased dependence on fuelwood ;ol' 1 imply increased
agricultural prices or decreased agricultural production for both domestic purposes and
for export. This model is a so-calledpartial equilibrium model since it focuses only on
the equilibrium behavior of the household. Prices and wages are taken a. given even
though in reality, they are determinedby the equilibriumbehavior of other sectors of the
economy. Nevertheless, the formulation does indicate that the marginal rate of
substitution between fuelwood labor and purchased energy is equal to the real energy
wage-that is, the money wage deflated by the price of purchasedenergy. This is based
on the reasonable assumption that the alternative employment opportunities for wood
collectors exist at the assumed rural wage rate.
3.2 Most of the relevantpolicy implicationsof the model are as follows. If the
underlying behavioral equations have their expected mathematical properties (e.g., that
indifferencecurves are convex to the origin),as real energy wagesrise, either because of
increases in the nominal wage or because of a fall in the market price of energy,
household fuelwood production will be expected to fall. Conversely, if policies exist
that either serve to raise purchased energy prices or to lower nominal wages, fuelwood
production would be expected to increase because of the substitution between non-
marketed fuelwood gathering compared to purchased alternative energy supplies.3 Of
course, complex policies could lead to both increases and decreases in household
fuelwoodproductionbut at different times. Thus, structuraladjustment programs could
in the short term increase fuelwood production if such programs required currency
devaluationand, thus, an increase in the domestic price of imported fuels. However, if
such programs were successful in the longer term, a decrease in fuelwood production
could eventually occur as '1usehold incomes increase.

2 Thereis an extensiveliteratureon rurallabormarketsin developingcountries,partic: 'ly for Asia. The

notionthat the opportunitycost of time in rural areasis very lowor zero is now out of favor. A basic
assumptionin the modelis thattheopportunity costof timein ruralareascanbe measuredby theruralwage.
This assumptionis now fairlywell acceptedin the developmentliteratureon rural wage markets(see
Rosenzweig, 1984as an example).
3 By explicitlyspecifyingutilityand productionfunctions-thatis, the explicitformsof (1), (2) and (4)-
householdproductionof fuelwoodcan be relatedto the otherparametersand variablesin the model.In
particular,Cobb-Douglas-type functionswill leadto relationshipsthat are linearin logarithmsand could,
thus,be estimatedwithlinearregressions.
 - 8-
3.3 The model in its simplified form does not have the power to analyze in
detail such generalequilibriuminteractions. In particuiar,it is unable to address spelific
economic developmentpolicies that may influence fuelwood productionthrough effects
on energy prices gnd wages. Of course, the likely effects of certain policies are fairly
obvious. For example, direct price subsidiesthat lowered the price of marketedenergy
wouiid have the expected effect of increasing purchased energy at the expense of
household fuelwood production. For instance, significant kerosene subsidies in
Indonesia have successfully encouraged three-quarters of urban households to use
kerosene for cooking (see Fitzgerald and co-authors, 1990). Logging prohibitions in
Thailand in 1987 caused a rapid and significant increase in the prices of wood fuels,
including charcoal which is used to cook traditional meals. As a consequence, in the
largest cities peoplc rapidly switched to alternative fuels. Hoviever, analyzing other
policy instrumentsmay be more difficult since their effects on prices and wages may be
more indirect. For example, the effects of devaluation can be expected in the short run
to raise imported energy prices and thus increase household fuelwood production.
However,in the longer run the devaluation could improve the outlook for exports and
thus may lead to increases in wages of those employed in the export sectors. Analysis
of this policy requires informationon the market wage opportunitiesof those producing
fuelwood-esperially with regard to whether these opportunities are in the export
sectors.
3.4 Other policies, such as general macroeconomicsfiscal or monetarypolicies,
can also have indirect but substantial influences on fuelwood production. Analysis of
these policies can be quite difficult since their ultimateeffect on the individualfuelwood
producer may result from the cumulative effects on many other sectors and forms of
economic activity. Partial equilibriummodels-such as the one describedabove-are of
limited use for this purpose. Some form of general equilibrium analysis would be
necessary. Such a general, inter-sector analysis can involve the use of formal models
such as input-outputor other activityanalysis models. Or it could simply consist of more
informal,qualitative,even judgmentalassessmentsof likelyinter-industryeffects.
3.5 Regardless of whether formal or informal methods are used, the analysis
should be supported by a data system that covers all the relevant inter-sector
relationships. Fortunately, the basis for such a comprehensive data system already
exists: the national economic accounts.
 -9 -
IV. Household Production in the Context of An Expanded
National Accounting System
4.1 Besides generating the summary statistics used to measure a nation's
economic performance (e.g., the GNP), the national economic accounts records all
significant economic transactions among the nation's industrial, governmental, and
household sectors. The data gathered for this purpose have become the raw material for
many formal and informal economic policy models. However, as useful as these
accounts are, they have been criticized for a number of deficiencies. Two are worth
mentioning since they affect the ability of the existing accounts to support analyses of
household energy production.
4.2 First, while the accounts in most nations provide detailed information on
industrial activity, household activity is normally aggregated into a single sector. As a
result, no information is provided on income and consumptionby income class, making
the accounts inadequate for the analysis of policies affecting income distribution. Of
perhaps more importance for the analysis of household energy production, there is no
detailed inlormation in the accounts on household income and consumption by source
of employment. This lack of detail makes it difficult to analyze the effects on household
behavior of policies directedtowards specific sectors such as agriculture.
4.3 Second, with very few exceptions, the conventional accounts only cover
economic activities that are reflected ir. market transactions. This second deficiencyis at
the root of the criticism of the accounts concerningtheir failure to reflect adequatelythe
degradation of the environment and natural resources. In addition to the failure to
account for non market environmentalactivity, the conventionaleconomic accounts fail
to measure the non marketed production that takes place within households. Since
fuelwood production is a major example of this non market household activity, this is a
major deficiency.

4.4 In the past few years, there have been a number of research efforts directed
towards both these deficiencies. The recommended approach (especially by Ruggles,
1986) for improving the usefulness of the accounts for distributional analysis is to link
the accounts directly to the basic census micro-datasets that provide the raw data. This
linkage is now possible due to modem computerhardware and, in fact, has been done in
several countries such as Norway.
4.5 Extending the accounts to greater coverage of non market activity is
reflected in a number of efforts to introduce accountingfor environmentalactivities.4 In
addition, there is a non-bindingrecommendationby the advisory committeeon revision
of the U.N. System of National Accounts (SNA) to include non market household
production to the extent that this productioncovers goods that are also sold in ordinary
riarkets. Presumably,fuelwoodproductionmeets this criterion.5
4 TheseefforLshave beensurveyedby Peskin(1990).

5 Apparentlythe advisorycommitteechose to confinehouseholdproductionto the productionof goods (with

clear marketcounterparts)rather thanservicesin orderto easevaluationproblems.If the home-producedgoods
do have clear market counterparts,then market prices can be used for their valuation.However, the above
model suggests that this distinction between household-producedgoods and services, while a statistical
expedient, may not be justified economically. The model suggeststhat goods derive their valueonly to the
 - 10-

4.6 One approach to expanding the conventional economic accounts in this

manner has been suggested by Peskin (1989). The general strategy is to introduce non
marketed goods and services as if they were marketed. As indicated below, fuelwood is
just one such non-marketedactivity. The valuations of these goods and services would
be based on estimates of what the consumers ov these goods and services would
actually be willing to pay for their use.
4.7 In order to capture all of the relevant non market activity associated with
household fuelwood production, three sorts of modifications to the conventional
economic accorints would be needed. First, household fuelwood production has to be
treated as if it were a non-householdproduction activity. Second, the implications of
the use of environmental services has to be explicitly recognized. In particular, the
modified accounts should recognize that the environment serves households,
agriculture, and industry as a receptor of pollutants (such as soil runoff) and as a direct
provider of benefits to society (recreation services, amenity services, services to plant
and animal species, etc.). Furthermore,the provisionof these services may be in conflict
(e.g., more waste disposal services usually means less of the direct beneficial services to
society). Third, the deterioration in the stock of environmentalassets, such as forests,
has to be accounted for in a manner not unlike the way the conventional accounts treat
the deteriorationof reproduciblecapital such as plant and equipment.
4.8 There are several ways to incorporate these concepts into a national
accounting framework. The following scheme is fairly straightforward and has the
advantage of preserving all the features of the conventionalnational accounts.

extentthattheysupportservices.Also,the modelsuggeststhatfromthehousehold'spoLitof view,thevalue

of a good,suchas fuelwood,dependsnot so muchon marketfuelwoodprices,but moreon thehousehold's
earningcapacity(the "wage")ana the priceof energysubstitutes.Only if all marketswere perfectly
competitivewouldmarketfuelwoodpricesreflectthetruevalueof householdfuelwoodproduction.Yet, if
marketswereperfectlycompetitive,it wouldbe hardto explaintheco-existence
of twoalternativesourcesof
fuelwood-themarketandthehousehold.
 -11l-

Figure 1:Modified
National Iocome and Product Accounts

INPUT OUTPUT

Compensationof Employees. PersonalConsumption

Proprietor'sIncome Investment
IndirectTaxes InventoryChange
Gross Return to Capital Exports
Imporls
GovernrnentGoodsand Services

CHARGESAGAINST
GROSSNATIONALPRODUCT GROSSNATIONALPRODUCT

Capital Depreciation(-) CapitalDepreciation(-)

CHARGESAGAINST
NET NATIONALPRODUCT NET NATIONALPRODUCT
 - 12-

4.10 The first new entry is a deduction for "Natural Resource Depreciation."
This entry covers the value of depletion an degradation of all environmental and
natural resources. In principle, this depreciation entry should equal the difference
between the discounted present value of the net benefits generated by the resource at
the beginning and the end of the accounting period. In the absence of estimates of net
future benefits, some investigators (e.g., Repetto, 1990) have obtained an estimate by
multiplying the physical change in the resource times an average unit "rent." For
resources where the "benefit" generated can be identified as the current extracted yield
of the resource (e.g., timber from forests, minerals from mines, etc.) the rent is estimated
by the difference between the cost of extraction and sales.
4.11 The validity of this procedure depends on certain strong assumptions.6
Moreover, it is only practical where the resource generates clearly marketed outputs.
Thus, if in addition to marketed timber, forests produce non-marketed fuelwood,
recreational amenities, and habitat for endangered species, the Repetto procedure will
not be viable. Furthermore, even if the outputs are marketed, there may not be any
observablerents. This situationis very likely to occur when there is open access to the
resource. Examples are open access fishing and unrestricted gathering of fuelwood.
Peskin (1991) discusses these issues and suggests alternative approaches, one of which
is to estimate changes in resource values directly by applying the present value formula
using simple extrapolationsto determinethe stream of future net benefits.
4.12 Subtractingout Natural ResourceDepreciationconverts NET NATIONAL
PRODUCTto MODFED NET NATIONALPRODUCT. Since the next major aggregate
shown in the proposed modified accounts is MODIFIED GROSS NATIONAL
PRODUCT, the two depreciation entries, Capital Depreciation and Natural Resource
Depreciationare then added back on both sides of the accounts.
4.13 The next entry is "Household Production", which serves to increase
conventional GNP and NNl'. To simplify the presentation, the value of the output of
household production is set at its input value. Thus, it is entered equivalently on both
sides of the accounts.7 How the value is determined is not self-evident. As discussed
above, fuelwood production could be measured by multiplying a physical measure of
fuelwoodproduced times a market price, assumingsome private fuelwood markets exist.
Another alternadve would be to multiply the number of hours in fuelwood production
times the household's potendal marketwage. However,in the spirit of the above partial
equilibrium model, the market wage should be deflated by the market price of fuelwood
energy substitutes.
4.14 F-Alowing this adjustment, on the left side of the accounts are entries
covering the value of environmental waste disposal services to both industries and
households. These entries serve to measure the positive value of pollution to polluters.

6 rle: that net benefitsincreaseover time exactlyat the maiketrate

The strongestappearsto be the "HoteUling"
of interesLIn addition,the approachassumesthat there are no monopolyprofits.
7 It wouldbe possibleto allow for a differencein input and output values.However,this wouldrequirea
balancingentry similarto the 'Net EnvironmentalBenefit"entry discussedbelow.
 - 13-
The underlying assumption is that the waste disposal represented by this pollution is a
freely provided factor input which is of value to the polluter.8 (As a matter of
convention,it is being treated like a subsidy. Thus, it is entered with a negative sign. In
principle, these entries should be valued according to how much the polluter would be
willing to pay for the privilege of disposing his or her wastes into the environment. In
practice, (see Peskin (1991)), the entries can be valued according to the prospective
costs of eliminatingthe pollution.
4.15 While the discharge of pollutants may be of value to the polluter, the
released pollutants generate social damages in terms of impairmentsto health and, more
generally, impairments to the ability of people to enjoy the positive services of the
natural environment. The value of these damages are entered as negatively signed
entries on the right side of the accounts. In principle,these entries are measuredin terms
of what affected parties would be willing to pay to avoid the damages. In practice, the
value of pollution damage has been estimated by a number of techniques familiar in the
literature on estimation of pollution-controlcosts and benefits. (See Freeman (1979)).
4.16 While both the Environmental Waste Disposal Service entries and the
EnvironmentalDamageentries may be far more significantfor industrial productionthan
for household production in industrial countries, this may not be the case in developing
countries. In particular, fuelwood production and associated deforestation activities do
generate wastes. The "costs" of both fuelwood gathering and fuelwood burning
would be very much higher than they are at present if gatherers and users were not free
to gen-rate these wastes. Thus, gatherers and uses receive a "subsidy", the value of
which should be entered on the left side of the accounts. Furthermore, the wastes
generated, such as sedimentation for deforested lands, can have serious consequences
for water-based recreation and for water-dependent ecosystems as well as for such
income-producingsectors as hydro-electricpower, agriculture,and fishing. The value of
these damages could be significant.
4.17 Two other entries are required to complete the accounts. On the right side
are Direct Consumption of Environmental Services. These cover the positive (non-
waste disposal) services that the environmentprovides to recreation, to esthetics, and to
the ecology. On the left side of the accounts, there is a balancing entry termed "Net
Environmental Ben-,fit." The term is defined as the sum of waste disposal services
(signed positively) and direct consumption services less environmental damages. This
entry assures that the final aggregate, MODIFIED GROSS NATIONAL PRODUCT,
equalsCHARGESAGAINSTMODIFIEDGROSSNATIONALPRODUCT.
4.18 In its highly consolidatedform, the account displayed does not contain the
detailed information needed to support a general equilibrium analysis of household
energy production. However, it is not possible to generate the consolidated account
without first assembling much of this detail. In a U.S. EPA pilot study of the
Chesapeake Bay region, for example, each consolidated account was supported by
about 15 detailed accounts that served to disaggregate the consolidated information by
2-digit Standard IndustrialClassification. These tables, in turn, were supported by even

8 Were this not the case-that is, were pollutioneliminationcostless-, its eliminationwouldbe much easier
than it appearsto be.
 - 14-
more detailed files that provided informationoften at the plant level of detail. Thus, it is
possible to identify use of environmentalservices and sources of environmentaldamage
in industrial and household detail as well as by geographical location. Since all
informationis indexed by standard industrial and regionalcodes, linking the information
to other data sets, such as the Population Census, is quite easy. These linkages with
standard economic and demographic information sets facilitate the use of the
information in the modified accounts as an input to forecasting and simulation models
and for more informalanalyses.9
4.19 Presumably, building a set of environmental/economics accounts that
highlight the role of householdfuelwoodproductionwould require data in similar detail,
but not necessarily in equal detail for all sectors of the economy. Since fuelwood
production is dominated by rural households, more economic detail would seem be
required for these economic activities that are dominant in rural regions-agriculture,
forestry, and fishing. Within these sectors, however,the requisite detail might be greater
than typically required for most general economic analyses in industrialized countries.
In particular, it may be necessary to not only classify activity by economic sector (e.g.,
agricultural crops) and by product within economic sector (e.g., coffee), but also by the
sex and age of the laborer. Thus, the data supporting the proposed account may not
only identify levels and location of crop production but also the composition of the
labor involved in the production broken down by sex and age. The reason for this
detail is that earlier studies (Brio, 1974; B6rio et. al., 1985; and Kumar and Hotchkiss,
1988) have shown that fuelwood production Lsperformed by women and young
children. Moreover,agricultural activities, which may be an important source ot money
income, often competes directly for this same labor pool. Neglecting the sexual
compositionof the labor force can thus lead to an underestimationof the consequences
of the competition betweenmarket and non market activity.

9 An earlier effort by Peskin (1981) to build similar environmentalaccounts for the United States generated
data that permitted simulationsof the costs, benefits, and income-distributionaleffects of a number of
alternativeenvironmentalpolicies.
 - 15 -

V. Implementation Strategies and Data Needs

5.1 There is only very limited experienceactually implementingan accounting
system along the lines discussedin the previous section. Most of this limited experience
has been confined to industrialized countries. Moreover, the focus has been almost
exclusively on accounting for the environmentaland economic activities of businesses.
The proposed accounting frameworks have neglected the non market activities
originating in the household sector, with the possible exception of the household
sector's non market use of the environment as a receptor of wastes from automobiles
and from sanitary sewerage.10 Fortunately, however, the non market behavior of the
household sector has been investigated in both industialized and developing countries,
although not for the purpose of integrating the information into a system of national
accounts."1 Thus, while the experience is limited, there is enough known to develop
guidelines that would support a successfulimplementationstrategy.
Sectoring and aggregation
5.2 The basic approachto implementingthe systemis to attempt to account for
all the inputs consumed and outputs generated by the economic sectors represented by
businesses, governments, and households regardless of whether these inputs and
outputs are marketed or non marketed. Of course, faced with finite resources for such a
formidable task, one must simplify the task by aggregatingthe above economic sectors
into a smaller number of manageablegroups and by focusing attention of those sectors
that, on a priori grounds, are the more important to the economy. In addition, choices
have to made regarding aggregation over space as well as over economic sectors.
Spatial aggregationmay be necessary for analytical reasons. For example, the response
of households to energy price increases in forested areas are likely to be different from
the mesponsein areas farther removed from sources of fuelwood. Spatial aggregation
may also be requiredfor politicalreasonsin nations where regionalidentity is important.
5.3 These choices of aggregationand of relative importance have to be made
to get the accounting process started. However, as information develops, different
aggregations may appear to make more sense and other sectors may gain in relative
importance. It must be rememberedthat accountingin a dynamic process should always
be open to continual revision.
5.4 For heavily agrarian African countries, it is likely that preliminary
aggregation choices should permit identification of those key sectors responsible for
domestic food production, food processing, agricultural exports, key extractive
industries, and households, grouped into urban and rural regions. More aggregation
could be expected for the small manufacturingindustries and for the trade sector.

10 The U.S. AID is funding an exploratoryproject in the Philippines that may include an accounting of the
nonmarketproductionactivitiesof the householdsector.
11 The followingis a representativesample of this literature: Bloch (1995), Kinsey (1986), Peskin, J. (1982),
Gauger,et. al. (1980),Zick and Bryant(1987),and Gronau(1980).
 - 16-
5.5 These aggregation choices, however, will be heavily influenced not only
by what sectors are perceived to be "important," but also by the cost of developing
data on sector inputs and outputs. These perceptions and data development costs will
differ country by country. In the initial stages of developing the accounting system,
there will be heavy reliance on existing data sets. Doing so, of course, reduces the costs
of data development but also helps identify the more important sectors, since it is those
sectors that are likely to have demanded past data collection resources.'2
Developing input-output information
5.6 In order for the accounts to support analyses of the complete economic
implicationsof policies affectingthe householdproductionof fuelwood, the list of sector
inputs and outputs should be equally complete. In industrialized countries, the
conventional economic accounts, especially for countries that have adhered to the
accountingmatrix systemof the UN Systemof NationalAccounts, already generates this
information for marketed inputs and outputs. If, in addition, the industrialized country
has an extensive natural resource and environmental policy system in place, there is
likely to be data on non market inputs and outputs (e.g., waste disposal services and
their costs, naturalresource consumption,pollution,environmentalamenities,etc.).
5.7 However, in developing countries, data on both marketed and non
marketed inputs and outputs may be hard to obtain. One possible approach would be to
"borrow" the data from industrial countries, modifying them, when possible, to account
for local conditions. Thus, if all that is known regarding a particular manufacturingor
agricultural operation in Africa is total production, then market and non market inputs
and outputs could be inferred from data on similar operations in industrialized
countries. 13 Engineering judgment could be used to adjust the data for the likely
differencesin labor/capitalratios, productiontechnique,or product mix. When a similar
strategy was employed in a U.S. pilot study,14 the published estimates stimulated
knowledgeablesector experts to come forth with better information. It is possible that a
similarresponse could be expectedin a developingcountry.

5.8 It is important, therefore, to not be over cautious in the development and

dissemination of the accounting information. The dissemination of "bad" data is an
important step in the developmentof a complete accountingsystem.
Developinghousehold information
5.9 The complete accounting framework requires that non market household
production be treated similarly to business production. What is needed is a complete
accounting of all marketed and non marketed household inputs and outputs. The inputs
include purchases of goods and services, the use of the natural environment for

12 The importance of household activity in developing countries perhaps explains why existing data on
nonmarkethouseholdactivityappearsmore abundantin, say, Cote d'lvoire than in the UnitedStates.
13 This approachmay be attemptedin Indonesiausinga combinationof U.S. and Dutchdata.
14 See Peskin (1981) for an overviewof this project.
 - 17-
enjoyment and for the disposal of wastes, and the consumptionof its own labor services.
The outputs include sales of marketed goods, marketed labor services, and the
productionof non marketed commoditiessuch as fuelwood.
5.10 This informationcan be developedfrom three types of surveys: household
time-use surveys, expendituresurveys, and employmentsurveys. While examples of all
three exist, there appear to be no cases in either developed or developing countries
where all three types have been consolidated into a single survey instrument. As a
result, it is difficult to "observe" the trade-offs between marketed employment,
household fuelw'od production, and the price of energy suggested by the above time-
use model. It may be possible to infer such trade-offs by looking at the aggregated data
on time use, employment,and expendituresover time (See Ironmonger,1989), but, given
the costs of surveying, it would be more efficient if these trade-offs could be viewed by
examininga cross sectionof householdsat a single point in time.
5.11 Thus, the developmentof such a single, comprehensivesurvey instrument
should be an objective of the accounting effort. Such a survey should, at a minimum
identify time use spent in household fuelwood production, expenditures on fuelwood
energy substitutes, and employment in sufficient detail to correspond to the sector
classification used in the input-output accounting of business activity. Before such a
survey is developed, it may be possible to simulate the results by matching responses
from separate time-use, expenditure, and employment surveys, to the extent that such
surveysexist. The match could be based on similar income,demographic,and locational
characteristics, and attributing such characteristics to a whole population.
Unfortunately, the databases for such work are not well developed. Most energy
surveys do not collect the requisite economic information,and most economic surveys
typically ignore non-marketed fuelwood production. At this point we have to make
fairly substantial assumptions concerning regional production of fuelwood based on
average use per person. A starting point may be including questions and plans for
analysis in the Living StandardsSurveys being conducted by the UNDP/WorldBank.
 - 18-
VI. Applications of the Accounting Scheme to Tanzania
6.1 Peskin (1983) illustrated the insights provided by an expanded national
accounting framework using data from Tanzania.15 He was especiallyinterested in how
such accounts could assist in project evaluation-specifically, the evaluation of a
hypothetical project to develop fuelwood plantations. Such plantations could reduce
the time and effort needed to gather fuelwood and, at the same time, help preserve
natural forests. On the other hand, plantation forestry makes considerabledemands on
the available labor. To the extent that this labor is drawn from other productive
activities, there may be considerable effects on the size and composition of total
produictionas well as the availability of foreign exchange. Depending on the size of
these effects, plantation forestry may appear less attractive when considered from the
point of view of the economy as a whole than from the point of view of the project
considered in isolation. Specifically, by not viewing the project in the holistic terms
provided by the expanded accounts, the true opportunity costs of the project may be
understated.
6.2 The starting point of the analysis is tscertain the importance of
fuelwood in the Tanzanian economy. The following, based on official statistics
(Tanzania Bureau of Statistics, 1981),is a highly consolidated version of the Tanzanian
GDP:

Figure2: CONVENTIONALGDP ACCOUNTSFORTANZANIA,19q0

(millionsof Tanzanianshillings)

INPUT OUTPUT
EmployeesCompensation 10,673 GovemmentPurhases 5,494
ProfitsandProprietors PrivateConsumption 31,369
Income 23,319 Investment 8,748
NATIONALINCOME 33,992 Exports 5,689
IndireTaxes 5,176 Imports -10,847
Subsidies 408
NET NATIONALPRODUCT 38,760
Capital Consumption 1,666

CIHARGESAGAINST
GROSS DOMESTICPRODUCT 40,426 GROSSDOMESTICPRODUCT 40,426

6.3 Since the focus of this example is solely on fuelwood, he made only two
modificationsto the accounts. First, Employee Compensationwas modified to account
for the imputed value of household labor used for the cutting, gathering, and transport
of fuelwood.
6.4 In making this modification, it is necessary to account for the fact that the
Tanzanian accounts already include in NATIONAL INCOME about 11,533 million
shillings as the imputed value of household production of agricultural,hunting, fishing,
and forestry products. Of this total, about 207 shillings is attributed to household
fuelwood production, based on an estimate of fuelwood volume produced times a value

15 A brief descriptionof this studymay be found in Peskin (1989).

 - 19-
set to approximatethe market price. However,the fuelwoodmarket in Tanzania is small
and confined to urban areas, while most fuelwood consumption is in rural areas.
Therefore, the market price may be unrepresentative of the unit value placed on
fuelwood by rural households.
6.5 Using Allen's (1983b) data, an alternative estimate can be obtained by
multiplying an estimated 137 million person-daysper year spent in household fuelwood
productiontimes the Tanzanianminimum wage assumed to be 20 shillings per day. This
calculation yields a much larger estimate of the value of fuelwood production: 2,746
million shillings as opposedto the "official" figure of 207 million shillings. The effect of
using this higher number in the accounts is to increase NATIONAL INCOMEby 2,539
million shillings (2,746 - 207). On the input side of the accounts, this increase is
balanced by an increase in Private Consumptionby the same amount.16
6.6 The second modificationis to account explicitly for the depreciationof the
capital value of forests as a fuelwoodgenerator. (In this exercise, he was not accounting
for the capital value of forests in terms of its generation of other goods and services,
both marketed and non marketed.)Calculation of depreciation,especially for assets that
generate non market services, is somewhat controversial. Therefore, depreciation was
calculated under three alternative approaches.
6.7 First, he applied the "net rent" approach of Repetto (Repetto,et. al. 1990).
Essentiallv under this approach, depreciation is calculated by multiplying fuelwood
extraction net of regeneration times the average unit rental value of the extracted
fuelwood. This method will provide a theoretically correct estimate of depreciation
assuming the so-called "Hotelling rule": the rate of return to the owners of an
extractable resource increases at the market rafteof interest. Lacking an cbserved rent,
he used the imputed value of the cutting (2,746 million shillings) divided by the
fuelwoodconsumption,estimatedby Allen (1983b) to be about 18.7 million cubic meters
in 1980. Allen also estimates that about 5.7 million cubic meters, or 31 percent,
regenerated. Thus, of the gross consumption of 2,746 million shillings, about 840
shillings worth of fuelwood regenerated. This implies that the net depreciation is about
1,906million shillings(2,746-840).
6.8 The second approach is to estimate the lifetime of the fuelwood asset
(defined as all sources of fuelwoc - including brush), the returns over this lifetime, and
the implied present asset value. "Straight-line" depreciation can then be estimated by
dividing present asset value by estimated lifetime. Lifetime can be estimated in the
following manner. The stock of fuelwoodremainingat any time equals:
R (t) =So +G(t) - C(t)

where So is the initial stock, G(t) is the annual regeneration, and C(O)is annual
consumption. Initial stock is estimatedto be 902.7 million cubic meters. Regenerationis
estimatedto be about 0.3 cubic meters per hectare-but only for cut fuelwood. (That is,
cutting is assumed required for regeneration.)As noted above, in the base year of 1980,
cutting was estimatedto be about 18.7 million cubic meters. It is estimated that this will
16 The implicitassumptionis that the consumptionvalueof fuelwoodequals the householdlabor input value.
 - 20-
increase over time in proportion to population growth, which, in turn, is estimated to
increase at about 2.5 percent per year. Thus, cutting over time is estimatedto be 18.7 (1
+ 0.025)t million cubic meters. Since there are 336.5 cubic meters per hectare, these
assumptionsimply that

Gt) =(0.3)x 18.7(1 +0.025)'

336.5 andC (t) = 18.7 (1 +0.025)'
Inserting these values into the equation for R (t) . This equation can be solved for that
value of t when the remaining stock of fuelwoodis exhausted(R (t) = 0). This value, T,
is the estimatedlifetimeor, given our assumptions,157years.
6.9 The present asset value of the fuelwood fo:est can be calculated by
discounting the consumptionvalue ( or C (t) = 2746(1 +0.025)') over the lifetime of 157
years at an assumed interestrate of 12 percent. Thus,
157
PVO= = 29,622,411thousandshillings
2746(+ 0.025)1

Dividingthis by 157 yields a straight-linedepreciationof 188,677thousand shillings.

6.10. A third estimate of depreciation can be based on the economic definition
of depreciation,namely, the change in asset value over time. During years near the base
year, this value can be quite small for assets with long lifetimes. In this case, depreciation
equals PVO-PV1 . Of course, we do not know how present values will change over time.
However, we can establish a depreciation "schedule" by assuming that the
consumption value will continue to grow at the same rate. Under this assumption,PV1
equals 29, 622, 409 thousand shillings. Thus, first-year economic depreciation equals
only 2,000 thousand shillings. Of course, other assumptionsare possible. Therefore,the
calculationsare only illustrative.
6.11. Given these enormous disparities, it is apparent that much more research
will be required before a single depreciation figure can be entered into the modified
accounts. Nevertheless,for illustrativepurposes,we shall use the straight-line estimatein
the modified Tanzanianaccounts.
The modified accounts thus take the followingform:
 - 21 -
Flgum
c 3: MODIFIEDGDP ACCOUN'TSFOR TANZANIA,1980
(millionsof Tanzanian shillings)

INPUT OUTPUT

Eimployees Compensation 10,673 GovemrnmentPurchases 5,494

Plus Valueof Household PrivateConsumption 31,369
FuelwoodProduction 2,539 Plus HouseholdFuelwood
EqualsModifiedEmployee Consumption 2,539
Compensation 13,212 EqualsModifiedPrivate
Profitsand Proprietors Consumption 33,908
Income 23,319 Investnent 8,748
MODIFEDNATIONAL INCOME 36,531 Exports 5,689
IndirectTaxes 5,176 Imports -10,874
Subsidies -408
LessDepreciationof
FuelwoodForests -189
MODIFIEDNETPRODUCT 41,110
CapitalConsumption 1,666
PlusDepreciationof
Fuelwoodforests 189
MODIFIED
GROSSDOMESTICPRODUCT 42,965 GROSSDOMESTICPRODUCT 42,965

6.12 Accounting for household fuelwood production in this illustration

increases consumption by 2,539 million shillings or 8 percent. Capital consumption
increases by the value of fuelwood forest depreciation of 189 million shillings or 11
percent. Overall Tanzanian GDP increases by the amount of fuelwood consumption
(2,539million shillings)or 6 percent.
6.13 The 2,539 million shillings of conventionally-uncountedconsumption is
supported by an equal value of household labor. This labor, while neglected in the
conventional accounts, is in competition for labor elsewhere in the economy. The
hypothetical plantation project would similarly compete for this labor. According to
Allen (1983b), approximately 648 million additional person-days will be required per
year to meet current fuelwood demands from plantations. A conventional cost-benefit
analysis would treat these additional person days as a cost against which the benefits of
natural forest preservation would be compared. At the assumed minimum wage of 20
shillings per day, this cost would be about 12,960 million shillings. However, if the
plantation labor were drawn from the pool of non market labor, a conventional benefit-
cost analysis would value the labor near zero-justifying the project without the need
to quantifyits benefits.
6.14 The expanded accounts provides a different perspective. Regardless of
their previous status as "under-" or "unemployed", the expanded accounts would
show some output reduction (some of which would be non marketed, household
output) due to the labor required by the plantations. Indeed, since the estimated 12,960
million shillingsof additionalplantationlabor equals the total market value of employed
labor in Tanzania in 1980, it is quite likely that the plantations would have to draw on
non market as well as market activities. Neglecting the value of these non market
activities necessarily implies that the opportunity costs of the project will be
underestimated. Using an expanded accounts to support the benefit-cost analysis
makes the neglect of these non market activitiesmuch less likely.
 - 22 -

VUI. Summary and Conclusions

7.1 The notion that GNP does not accurately reflect production in poor
developing countries has widespread acceptance. The problem of under-measuring
national production has been well known for decades. Instead of trying to account for
the many areas of informal trade and production, we have focused only on fuelwood
production. There are several reasons for choosing fuelwood production. In the
poorest countries uncounted fuelwood productionis the main source of energy for most
households. Inattentionby policy makers to this sector also could lead to distortions in
other energy markets. These are complicated matters that require a comprehensive
economic framework because of the tradeoffs households must make between utilizing
their labor for collecting fuel compared to purchasing more convenient fuels with scarce
cash income.
7.2 The national accounts are weak in measuring household production and,
particularly,in their ability to account for women's time. In low income countries, the
amount of time spent on energy collection and use may contribute significantly to
overall economic output. The value of this output is not readily computed since it will
vary depending on the opportunity cost of time, the market value of the collected
fuelwood, and other factors. Nevertheless,the contribution of the informal production
to the economy should not go uncounted.
7.3 Policy makers in certain instances can be misled by the notions that large
infrastructureprojects are superiorto more mundaneprojects that may deal with informal
household production. In the agricultural development literature, there is a consensus
emerging that labor-intensive forms of agricultural development may lead to more
equitable economic growth than labor-substitution methods (see Mellor, 1976). The
argument is that the labor displacementby large, capital intensive agricultural schemes
leads to conc ntration of wealth that is unhealthy for the larger economy. Likewise
over-investmentin large capital intensive energy schemes that do not lead to significant
economic growth with widespread benefits for society may do nothing but aggravate
inequality while hindering economic growth. Until we understand both the linkages
betweenthe formal and informal energy production--especiallyin low income countries-
-we will not be able to *ieterminewhetherthis is true for the energy sector as well.
7.4 This paper has not dealt with the environmentalexternalities involved in
household energy production. (see Teplitz-Sembitzkyand Schramm, 1989). Obviously,
the use of locally produced biomass saves foreign exchange for imported oil for oil
importing countries, but the collection of biomass from unmanaged sources that draw
down tree stocks without replanting them would depleted national resources. In
addition, households that switch to agricultural residues may be depleting soils of
organic matter, reducingagriculturalprodu-ftion.These are all important issues that must
be addressedat a later stage.
 - 23 -

7.5 One of the most important contributions of including household

production in the national accounts is not only that the value of household production
is more accurately reflected in economic accounts, but the fact that the impact of
developmentcan be more fairly measured. Such a framework is essential for evaluating
the benefits of energy projects, especially in poor developing countries where informal
productionis a large componentof unmeasuredGNP.
 -24 -
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Countries Ph.D. dissertation sub.aitted to the Johns Hopkins University,
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Becker, Gary S. 1981. A Treatise on the Family Cambridge,Mass.: Harvard University
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B&rio,Ann-Jacqueline. 1974. "The Analysisof Time Allocationand ActivityPatterns in
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Cecelski, Elizabeth. 1987. "Energy and Rural Women's Work: Crisis. Response and
PolicyAlternatives". InternationalLabour Review, vol. 126, p. 45.
CEPAL. 1988. Anuario Estadisticode America Latina y el Caribe, Santiago de Chile,
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 - 27 -
Appendix A
The Fuelwood Production Model

1 The following model-an application of the household production model

of Becker (1981)-illustrates how household fuelwood activity interacts with other
market activity. For those not interested in the mathematical derivation, the model is
explained in the sectionthat immediatelyfollows.
2 The model consists of the followingendogenousvariables:
u Utility
z "Z"-goods
Q Market goods
ME Purchased energy
F Fuelwood energy (nonmarket)
E Total energy
TH
1 Householdproductiontime (except for
fuelwood)
TF Fuelwood gathering time
TW Work time (market)
L Leisure
The following parametersare not determinedby the model:
T Total time
PQ Market prices of goods (except purchased
energy)
PnE Market price of purchasedenergy
w Wage rate
3 These variables and parametersare related by a system which assumes that
household utility depends on leisure, L, and a vector of goods and services that are
"produced" within the household with various home-produced and purchased inputs.
The model assumesthat the householdderives no utility from goods themselves but only
from transformationof these goods. In effect, the household gets no utility from food,
per se, but only from "meals"-a transformation of the food. The transformed goods
and services are representedby the variable Z. The resultingutility functionis thus:
U =U(Z, L). (1)

4 In this model, the production process that generates the "Z"-goods is

represented by a production function that contains only three inputs: market-purchased
goods, Q,energy, E, and the time the householddevotes to this production activity, Tn.
Thus,
Z = Z (Q,E,TH). (2)
 - 28 -

5 However, the household has the choice of purchasing the energy on the
market or producing the energy itself through the collection of fuelwood. To keep
matters simple, the model assumes that these two sources of energy are perfectly
substitutable. Thus,
E=ME +F (3)

where MAEand F are quantities of purchasedenergy and fuelwoodrespectively.

6 Fuelwood is generated by a another production process that assumes no
input other than collection time, TF:
F=F(TF). (4)

7 To the extent the household uses purchased goods and energy, the
amounts consumed cannot exceed money income available. Since this model is not
dynamic, it would never be in the household's interest to save its money income.
Therefore,the followingequality must hold:
WTw=PQQ + PEME, (5)

where w Twis money income, PQQ is expenditure on market goods, and PEME is
expenditure on market energy.
8 The only real constraint in this model is the amount of available time, T.
Thus, the followingtime budget must hold:
T =Tw+TH+TF+L. (6)

9 The economic problem facing this household is to maximize its utility,

described by equation (1), subject to the time constraint imposed by equation (6), the
production processesdescribed by equations(2) and (4), and the assumptions embodied
in equations (3) and (5). This constrained maximization problem is equivalent to
maximizingthe followingLagrangian:
A - U [Z (Q, ME +F (TF), TH 1), L
+ Xi (w TW- PQ Q - PEME)
+ X2(T - TW- TH - TF- L)

10 Maximizationleads to the following first order conditions:

UQ- ALPQ
=0 )

-L= UL - A2= °
aL ~~~~~~~~~~~~(8)
 - 29 -

aA= UM8- AIPE= °

WME (9)

a = UTF-A2 =0
arTF (10)

AT= UTH- 2 = (11)

- = ;L1W-A2 = O
aTw (12)

Inspection of these first-order conditions leads to several important, albeit not

unexpected,results.
From(12),

AI (13)
That is, in equilibrium,the nominal money wage equals the shadow price of time divided
by the shadow price of income. This ratio has been identified as "the opportunity cost
of time." (Kinsey,1986,p. 32).

From (7), (8) and (12),

. Jr = w
UQ PQ. (14)

The marginal rate of substitution between leisure and purchased goods equals the real
wage (the money wage divided by the price of goods).
From (7) and (9),
UQ= PQ
UM, PME. (15)
The marginal rate of substitution between purchased goods and purchased energy is
equal to the ratio of their respectiveprices.
Fmally,from (9), (10) and (12),
UT), w
UM, PE. (16)
 - 30-

The marginalrate of substitution betweenfuelwoodlabor and purchased energy is equal

to the real energy wage-that is, the money wage deflateJ by the price of purchased
energy.
 World Bank Industry and Energy Department
ENERGY SERIES PAPERS
No. 1 Energy Issuesin the DevelopingWorld,February 1988.
No. 2 Reviewof World Bank Lendingfor ElectricPower, March 1988.
No. 3 SomeConsiderationsin CollectingData on HouseholdEnergyConsumption,
March 1988.
No. 4 ImprovingPower SystemEfficiencyin the DevelopingCountriesthrough
PerformanceContracting,May 1988.
No. 5 Impactof LowerOil Priceson RenewableEnergyTechnologies,May 1988.
No. 6 A Comparisonof Lamps for DomesticLightingin DevelopingCountries,June
1988.
No. 7 RecentWorld Bank Activitiesin Energy (revisedOctober1989).
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No. 9 CurrentInternationalGas Trades and Prices,November1988.
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No. 11 TechnologySurveyReporton ElectricPower Systems,February 1989.
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No. 14 Financingof the Energy Sectorin DevelopingCountries,April 1989.
No. 15 The FutureRole of Hydropowerin DevelopingCountries,April 1989.
No. 16 FuelwoodStumpage: Considerationsfor DevelopingCountryEnergy Planning,
June 1989.
No. 17 IncorporatingRisk and Uncertaintyin Power SystemPlanning,June 1989.
No. 18 Reviewand Evaluationof HistoricElectricityForecastingExperience,(1960-
1985), June 1989.
No. 19 WoodfuelSupplyand EnvironmentalManagement,July 1989.
No. 20 The MalawiCharcoalProject- Experienceand Lessons,January 1990.
No. 21 CapitalExpendituresfor ElectricPowerin the DevelopingCountriesin the
1990s,February 1990.
No. 22 A Reviewof Regulationof the Power Sectorsin DevelopingCountries,
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No. 23 SummaryData Sheetsof 1987Power and CommercialEnergy Statisticsfor 100
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No. 25 The Statusof LiquifiedNaturalGas Worldwide,March 1990.
No. 26 PopulationGrowth,WoodFuels, and ResourceProblemsin Sub-Saharan
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No. 27 The Statusof NuclearPower Technology- An Update,April 1990.
No. 28 Decommissioningof NuclearPowerFacilities,April 1990.
No. 29 InterfuelSubstitudonand Changesin the Way HouseholdsUse Energy: The
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No. 30 Regulation,Dereguladon,or Reregulation--Whatis Neededin LDCs Power
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No. 36 RadioactiveWaste Management- A BackgroundStudy,June 1991.
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No. 40 Summary 1988Power Data Sheetsfor 100 DevelopingCountries,August 1991.
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No. 43 Guidelinefor DieselGeneratingPlant SpecificationandBid Evaluation,
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No. 44 A Methodologyfor RegionalAssessmentof Small ScaleHydro Power,
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No. 45 Guidelinesfor AssessingWind EnergyPotential,September1991.
No. 46 Cure Reportof the ElectricPowerUtilityEfficiencyImprovementStudy,
September 1991.
No. 47 KeroseneStoves:Their Performance,Use, and Constraints,October 1991.
No. 48 Assessmentof BiomassEnergyResources:A Discussionon its Need and
Methodology,December1991.
No. 49 Accountingfor TraditionalFuel Production:the Household-EnergySectorand
Its Implicationsfor the DevelopmentProcess,March 1992.
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No. 16 Small Trading Companies and a Successful Export Response: Lessons

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No. 17 Flowers: Global Subsector Study, December 1989.

No. 18 The Shrimp Industry: Global Subsector Study, December 1989.

No. 19 Garments: Global Subsector Study, December 1989.

No. 20 World Bank Lending for Small and Medium Enterprises: Fifteen Years
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No. 33 Gha.ia's Small Enterprise Sector: Survey of Adjustment Response and

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No. 34 Footwear: Global Subsector Study, June 1990.

No. 35 Tightening the Soft Budget Constraint in Reforming Socialist Economies,

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No. 45 The Impact of Adjustment Lending on Industry in African Countries,

June 1991.

No. 46 Banking Automation and Productivity Change: The Brazilian Experience,

July 1991.
No. 47 Global Trends in Textile Technology and Trade, December 1991.

No. 48 Are There Dvnamic Externalities from Direct Foreign Investment? Evidence
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No. 49 Do Firms with Foreign Equity Recover Faster From Financial Distress? The
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with Technological Change, December 1991.

No. 54 Efficiency, Corporate Indebtedness and Directed Credit in Colombia,

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