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A General Method for Valuing Non-Market Goods Using Wellbeing Data: Three-Stage Wellbeing Valuation

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  • Daniel Fujiwara
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    Abstract

    Subjective wellbeing data is becoming increasingly popular in economics research. The wellbeing valuation approach uses wellbeing data instead of data gleaned from preferences to attach monetary values to non-market goods. This method could be an important alternative to preference-based valuation methods such as contingent valuation, but there are a number of significant technical deficiencies with the current methodology. It is argued that the current method derives biased estimates of the value of non-market goods. The paper presents Three-Stage Wellbeing Valuation, a new approach to valuation using subjective wellbeing data that solves for the main technical problems and as a result derives estimates of welfare change and value that are consistent with welfare economic theory. As an example, I derive robust values associated with unemployment using the new approach and compare these to biased values derived from the standard wellbeing valuation method. Values derived from Three-Stage Wellbeing Valuation can be used in cost-benefit analysis.

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    Bibliographic Info

    Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1233.

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    Date of creation: Jul 2013
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    Handle: RePEc:cep:cepdps:dp1233

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    Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

    Related research

    Keywords: subjective wellbeing; non-market valuation; cost-benefit analysis; unemployment; causal inference;

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    1. Alois Stutzer & Bruno S. Frey, 2004. "Reported Subjective Well-Being: A Challenge for Economic Theory and Economic Policy," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 124(2), pages 191-231.
    2. Ferreira, Susana & Moro, Mirko, 2009. "On the Use of Subjective Well-Being Data for Environmental Valuation," Stirling Economics Discussion Papers 2009-24, University of Stirling, Division of Economics.
    3. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
    4. Gardner, Jonathan & Oswald, Andrew J., 2007. "Money and mental wellbeing: A longitudinal study of medium-sized lottery wins," Journal of Health Economics, Elsevier, vol. 26(1), pages 49-60, January.
    5. Levinson, Arik, 2012. "Valuing public goods using happiness data: The case of air quality," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 869-880.
    6. Richard Layard & Guy Mayraz & Stephen J Nickell, 2007. "The marginal utility of income," LSE Research Online Documents on Economics 19745, London School of Economics and Political Science, LSE Library.
    7. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
    8. Nattavudh Powdthavee, 2010. "How much does money really matter? Estimating the causal effects of income on happiness," Empirical Economics, Springer, vol. 39(1), pages 77-92, August.
    9. Paul Dolan & Robert Metcalfe, 2008. "Comparing Willingness-to-Pay and Subjective Well-Being in the Context of Non-Market Goods," CEP Discussion Papers dp0890, Centre for Economic Performance, LSE.
    10. Bernard van den Berg & Ada Ferrer-i-Carbonell, 2007. "Monetary valuation of informal care: the well-being valuation method," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1227-1244.
    11. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
    12. Simon Luechinger, 2009. "Valuing Air Quality Using the Life Satisfaction Approach," Economic Journal, Royal Economic Society, vol. 119(536), pages 482-515, 03.
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