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A Step towards Valuing Utility the Marginal and Cardinal Way

Author

Listed:
  • Paul Dolan
  • Daniel Fujiwara
  • Robert Metcalfe

Abstract

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

Suggested Citation

  • 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.
  • Handle: RePEc:cep:cepdps:dp1062
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    References listed on IDEAS

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    Cited by:

    1. Beja Jr, Edsel, 2012. "Who is happier: Housewife or working wife?," MPRA Paper 40533, University Library of Munich, Germany.
    2. Andrew E. Clark & Yarine Fawaz, 2015. "Retirement and the Marginal Utility of Income," PSE Working Papers halshs-01189009, HAL.
    3. Metcalfe, Robert & Dolan, Paul, 2012. "Behavioural economics and its implications for transport," Journal of Transport Geography, Elsevier, vol. 24(C), pages 503-511.

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    More about this item

    Keywords

    subjective well-being; utility; happiness; multicollinearity; income; non-market goods;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • D6 - Microeconomics - - Welfare Economics
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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