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Beyond GDP: Is there a law of one shadow price?

Listed author(s):
  • Murtin, Fabrice
  • Boarini, Romina
  • Cordoba, Juan Carlos
  • Ripoll, Marla

This paper builds a welfare measure encompassing household disposable income, unemployment and longevity, which are valued either from life satisfaction data (“subjective shadow prices”) or from calibrated utility functions (“model-based shadow prices”). The two different sets of shadow prices are shown to be broadly consistent once a number of conditions are fulfilled: i) running life satisfaction regressions at the country level rather than at the individual level to reduce the downward bias on the income variable due to measurement errors; (ii) valuing the unemployment risk in a state-contingent framework rather than under the veil of ignorance; (iii) disentangling relative risk aversion parameters for unemployment and vital risks; (iv) calibrating the utility function on adult lifespan rather than life expectancy at birth.

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File URL: http://www.sciencedirect.com/science/article/pii/S0014292117301629
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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 100 (2017)
Issue (Month): C ()
Pages: 390-411

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Handle: RePEc:eee:eecrev:v:100:y:2017:i:c:p:390-411
DOI: 10.1016/j.euroecorev.2017.09.001
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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