We can also look at the issue from the perspective of household welfare, the ultimate
rationale for sustaining and enhancing growth in any event. We have already noted that
household well-being depends on environmental quality as well as material consumption. One
way that environmental quality can be enhanced is to simply reduce economic product and the
associated environmental degradation from waste flows. Societies can in principle make
tradeoffs as to how consumption-rich and environment-poor or consumption-poor and
environment-rich they wish to be. Fortunately, there are other margins for tradeoff through
investment as well. By foregoing some consumption in the short term society can invest in
byproducts management and environmental remediation that not only improve the environment
but also enhance economic product in the long term. The same logic applies to investments in
natural resource management.
This diagram describes pathways and linkages; it does not describe how an actual
economic system performs in terms of overall economic efficiency and investment in natural
capital in particular. In any economic system, these outcomes depend on what we can call the
effective prices faced by agents in the system. These prices depend on the effective scarcity of
the resources in question, which in turn depends on the state of technology (including human
capital as well as technical knowledge); knowledge levels and preferences of the population; the
size of the natural resource stock; and the institutions that mediate the allocation and exchange of
the resources in question.