Happiness and environmental economics

Happiness economics has accumulated a number of insights that are valuable to environmental economics. While standard microeconomics is concerned with consumption as the sole source of utility, happiness economics has established that environmental quality affects utility, an influence that previously has been measured only indirectly. What is more, happiness data enable researchers to estimate the utility trade-off that people are willing to make between consumption and the environment, thus providing a new tool for environmental valuation and benefit_cost analysis. In addition, happiness economics has found evidence for the view that people evaluate consumption not in absolute terms, but in relation to the consumption of others and to their own past consumption. This creates consumption externalities that lead to market failures in addition to those stemming from environmental externalities. Consumption and environmental externalities combined suggest that environmental regulation may need to be stricter than is suggested by traditional models of environmental policy.