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Comparing Willingness-to-Pay and Subjective Well-Being in the Context of Non-Market Goods

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  • Paul Dolan
  • Robert Metcalfe

Abstract

In order to value non-market goods, economists estimate individuals' willingness to pay (WTP) for these goods using revealed or stated preference methods. We compare these conventional approaches with subjective well-being (SWB), which is based on individuals' ratings of their happiness or life satisfaction rather than on their preferences. In the context of a quasi- experiment in urban regeneration, we find that monetary estimates from SWB data are significantly higher than from revealed and stated preference data. Stigma in revealed preferences, mental accounting in stated preferences and unspecified duration in SWB ratings might explain some of the difference between the valuation methods.

Suggested Citation

  • Paul Dolan & Robert Metcalfe, 2008. "Comparing Willingness-to-Pay and Subjective Well-Being in the Context of Non-Market Goods," CEP Discussion Papers dp0890, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0890
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    2. Berlemann, Michael, 2016. "Does hurricane risk affect individual well-being? Empirical evidence on the indirect effects of natural disasters," Ecological Economics, Elsevier, vol. 124(C), pages 99-113.
    3. Anita Ratcliffe, 2015. "Wealth Effects, Local Area Attributes, and Economic Prospects: On the Relationship between House Prices and Mental Wellbeing," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(1), pages 75-92, March.
    4. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2010. "The Life Satisfaction Approach to Environmental Valuation," Annual Review of Resource Economics, Annual Reviews, vol. 2(1), pages 139-160, October.
    5. Paul Dolan & Daniel Fujiwara & Robert Metcalfe, 2011. "A Step towards Valuing Utility the Marginal and Cardinal Way," CEP Discussion Papers dp1062, Centre for Economic Performance, LSE.
    6. Daniel J. Benjamin & Ori Heffetz & Miles S. Kimball & Alex Rees-Jones, 2014. "Can Marginal Rates of Substitution Be Inferred from Happiness Data? Evidence from Residency Choices," American Economic Review, American Economic Association, vol. 104(11), pages 3498-3528, November.
    7. Dolan, Paul & Layard, Richard & Metcalfe, Robert, 2011. "Measuring subjective well-being for public policy," LSE Research Online Documents on Economics 35420, London School of Economics and Political Science, LSE Library.
    8. Berlemann, Michael, 2015. "Hurricane Risk, Happiness and Life Satisfaction. Some Empirical Evidence on the Indirect Effects of Natural Disasters," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113073, Verein für Socialpolitik / German Economic Association.
    9. Romina Boarini & Margherita Comola & Femke Keulenaer & Robert Manchin & Conal Smith, 2013. "Can Governments Boost People’s Sense of Well-Being? The Impact of Selected Labour Market and Health Policies on Life Satisfaction," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(1), pages 105-120, October.
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    11. Fujiwara, Daniel, 2013. "A general method for valuing non-market goods using wellbeing data: three-stage wellbeing valuation," LSE Research Online Documents on Economics 51577, London School of Economics and Political Science, LSE Library.
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    13. Powdthavee, Nattavudh & Stutzer, Alois, 2014. "Economic Approaches to Understanding Change in Happiness," IZA Discussion Papers 8131, Institute for the Study of Labor (IZA).
    14. Paul Dolan & Richard Layard & Robert Metcalfe, 2011. "Measuring Subjective Wellbeing for Public Policy: Recommendations on Measures," CEP Special Papers 23, Centre for Economic Performance, LSE.
    15. Beckmann, Michael & Cornelissen, Thomas & Schauenberg, Bernd, 2009. "Fixed-term Employment, Work Organization and Job Satisfaction : Evidence from German Individual-Level Data," Working papers 2009/08, Faculty of Business and Economics - University of Basel.
    16. Bruno Frey & Alois Stutzer, 2012. "The use of happiness research for public policy," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 38(4), pages 659-674, April.
    17. Angus Deaton & Jane Fortson & Robert Tortora, 2008. "Life (evaluation), HIV/AIDS, and death in Africa," Working Papers 1121, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
    18. Daniel Fujiwara, 2013. "A General Method for Valuing Non-Market Goods Using Wellbeing Data: Three-Stage Wellbeing Valuation," CEP Discussion Papers dp1233, Centre for Economic Performance, LSE.

    More about this item

    Keywords

    willingness to pay; preferences; life satisfaction; subjective well-being; nonmarketgoods;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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