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A Step towards Valuing Utility the Marginal and Cardinal Way

  • Paul Dolan
  • Daniel Fujiwara
  • Robert Metcalfe

Income has a direct impact on our utility as well as an indirect impact through the goods, services and life events it allows us to purchase. The indirect effect of income is not properly accounted for in existing research that uses measures of cardinal utility for economic analysis. We propose a new approach for appropriately attributing the full effects of income on utility and we show the implications of our approach using a longitudinal dataset that contains reports of subjective wellbeing (SWB). We show that income has a much greater effect on SWB when indirect effects are considered. These results have important implications for how we value the marginal benefits of non-market goods and we explore some of these issues in the paper

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1062.

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Date of creation: Jul 2011
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Handle: RePEc:cep:cepdps:dp1062
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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