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A step towards valuing utility the marginal and cardinal way

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  • Dolan, Paul
  • Fujiwara, Daniel
  • Metcalfe, Robert

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

  • Dolan, Paul & Fujiwara, Daniel & Metcalfe, Robert, 2011. "A step towards valuing utility the marginal and cardinal way," LSE Research Online Documents on Economics 121714, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121714
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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. Geraci, Andrea & L. Bryan, Mark, 2016. "Non-standard work: what’s it worth? Comparing alternative measures of workers’ marginal willingness to pay," ISER Working Paper Series 2016-12, Institute for Social and Economic Research.
    4. Metcalfe, Robert & Dolan, Paul, 2012. "Behavioural economics and its implications for transport," Journal of Transport Geography, Elsevier, vol. 24(C), pages 503-511.
    5. Courard-Hauri David & Lauer Stephen A., 2012. "Taking "All Men Are Created Equal" Seriously: Toward a Metric for the Intergroup Comparison of Utility Functions Through Life Values," Journal of Benefit-Cost Analysis, De Gruyter, vol. 3(3), pages 1-30, August.
    6. Ricky N. Lawton & Daniel Fujiwara & Ulrike Hotopp, 2022. "The value of digital archive film history: willingness to pay for film online heritage archival access," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 46(1), pages 165-197, March.
    7. Rasciute, Simona & Downward, Paul & Simmons, Nick, 2023. "Valuation of subjective wellbeing and the role of marital status: Linear versus ordinal estimators," Economic Modelling, Elsevier, vol. 123(C).

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    More about this item

    Keywords

    subjective well-being; utility; happiness; multicollinearity; income; non-market goods; wellbeing;
    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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