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Valuing Public Goods: The Life Satisfaction Approach

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  • Bruno S. Frey
  • Simon Luechinger
  • Alois Stutzer

Abstract

This paper discusses a novel approach to elicit people’s preferences for public goods, namely the life satisfaction approach. Reported subjective well-being data are used to directly evaluate utility consequences of public goods. The strengths of this approach are compared to traditional approaches and identification issues are addressed. Moreover, it is applied to estimate utility losses caused by terrorist activities in France, the UK and the Republic of Ireland. Terrorism in these countries depresses life satisfaction in a sizeable and robust way. However, the calculation of the trade-off between terrorism and income requires improved measurement of the marginal utility of income.

Suggested Citation

  • Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2004. "Valuing Public Goods: The Life Satisfaction Approach," CESifo Working Paper Series 1158, CESifo.
    • Handle: RePEc:ces:ceswps:_1158
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    More about this item

    Keywords

    life satisfaction approach; non-market valuation; cost-benefit analysis; subjective well-being; and terrorism;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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