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

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  • Murtin, Fabrice
  • Boarini, Romina
  • Cordoba, Juan Carlos
  • Ripoll, Marla

Abstract

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.

Suggested Citation

  • Murtin, Fabrice & Boarini, Romina & Cordoba, Juan Carlos & Ripoll, Marla, 2017. "Beyond GDP: Is there a law of one shadow price?," European Economic Review, Elsevier, vol. 100(C), pages 390-411.
  • Handle: RePEc:eee:eecrev:v:100:y:2017:i:c:p:390-411
    DOI: 10.1016/j.euroecorev.2017.09.001
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    Cited by:

    1. Matthew Calver, 2016. "Measuring the Appropriate Outcomes for Better Decision-Making: A Framework to Guide the Analysis of Health Policy," CSLS Research Reports 2016-03, Centre for the Study of Living Standards.
    2. Arnaud Joskin, 2017. "Working Paper 04-17 - Qu’est-ce qui compte pour les Belges ? Analyse des déterminants du bien-être individuel en Belgique
      [Working Paper 04-17 - Wat telt voor de Belgen? Analyse van de determinante
      ," Working Papers 1704, Federal Planning Bureau, Belgium.

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