New approaches to measuring welfare

Economics has traditionally understood ‘welfare’ (what makes a life go well) as the satisfaction of preference. This conceptualisation of welfare is typically measured using revealed preferences, proxied through income and prices or stated in willingness‐to‐pay surveys. Recent decades have seen growing challenges to this paradigm. The climate crisis, among other phenomena, has called into question whether income and price data effectively proxy preferences, and willingness‐to‐pay surveys continue to struggle with accurately pricing important items such as biodiversity, digital goods, privacy and social connections. Preference satisfaction as a welfare criterion has also been challenged conceptually by psychologists and scholars working in the development space, among others. In this article, we review recent innovations in alternate ways of conceptualising and measuring welfare for the purposes of economic welfare analysis. We focus on using stated preferences over aspects of well‐being, life‐satisfaction scales and the WELLBY approach, and well‐being frameworks such as Bhutan's Gross National Happiness Index. While not without weaknesses, these approaches also have marked strengths relative to the traditional approach.