4.

What limitations are in the current GDP accounting system that does not include all
aspects of the power production process? Explain using concepts of externalities.
An externality is a cost or benefit of an economic activity experienced by an unrelated
third party. Gross Domestic Product (GDP) is a monetary measure of the market value of
all final goods and services produced in a specific period by a country.

The GDP accounting system does not include all aspects of the power plant production
process as discussed in the following limitation:
Unpaid household production and informal economic activity: Household activities of
the locals and workers such as as childcare, housekeeping are not considered as they
unpaid or belong to the informal economy.
Defensive expenditures Defensive expenditures raise the GDP, yet crime, hostility,
unrest is not considered. This is a negative externality as evident among locals and
environmentalists.
Distribution of income Well being is not equal across all levels of stakeholders involved
in the power production process, that is not incorporated in the GDP. The rising price of
coal increases the price of electricity. Hence, the powerplant would benefit those with the
ability to pay for electricity. This is a negative externality for electricity consumers who
also suffer the loss of Sundarbans.
Non-economic contributors The GDP does not consider the health, education level,
political participation of locals, workers in the site. There is a cost imposed on health and
the environment of negative externalities arising from the production and consumption of
the power plant.
Natural capital: The production process leads to environmental degradation and resource
depletion. Human well-being is ultimately dependent on natural capital. Studies show
that impacts of coal fired power plant are negative and irreversible and cannot be
mitigated in any way. Rampal power plant will not only threaten the biodiversity of
Sundarbans but will also leave the South Western coast of Bangladesh vulnerable to
storm, cyclone, and other natural disasters. 
Non-market transactions: The government of Bangladesh accumulated land for the
power plant. A negative externality arises among shrimp cultivators and those with
dispossessed lands- unrelated third party of the powerplant. The construction creates a
radical change in land control, threatening agriculture based rural livelihoods. Small and
marginal landowners were pushed out.
Sustainability of growth: Environmental management is not prioritized due to cost
effectiveness.  Environmental Management Plan (EMP) was developed to minimize the
negative impacts. It did not immediately ensure no resource shortage in the project's
lifetime. To maximize profit for repaying its loan, the venture may deprive environment
for its own benefit.

Sensitivity: Internal