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A general method for valuing non-market goods using wellbeing data: three-stage wellbeing valuation

  • Daniel Fujiwara
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    Subjective wellbeing data is becoming increasingly popular in economics research. The wellbeing valuation approach uses wellbeing data instead of data gleaned from preferences to attach monetary values to non-market goods. This method could be an important alternative to preference-based valuation methods such as contingent valuation, but there are a number of significant technical deficiencies with the current methodology. It is argued that the current method derives biased estimates of the value of non-market goods. The paper presents Three-Stage Wellbeing Valuation, a new approach to valuation using subjective wellbeing data that solves for the main technical problems and as a result derives estimates of welfare change and value that are consistent with welfare economic theory. As an example, I derive robust values associated with unemployment using the new approach and compare these to biased values derived from the standard wellbeing valuation method. Values derived from Three-Stage Wellbeing Valuation can be used in cost-benefit analysis.

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    File URL: http://eprints.lse.ac.uk/51577/
    File Function: Open access version.
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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 51577.

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    Length: 33 pages
    Date of creation: 2013
    Handle: RePEc:ehl:lserod:51577
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    1. Gardner, Jonathan & Oswald, Andrew J., 2006. "Money and Mental Wellbeing: A Longitudinal Study of Medium-Sized Lottery Wins," IZA Discussion Papers 2233, Institute for the Study of Labor (IZA).
    2. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
    3. Richard Layard & Guy Mayraz & Stephen J. Nickell, 2007. "The Marginal Utility of Income," SOEPpapers on Multidisciplinary Panel Data Research 50, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Arik Levinson, 2009. "Valuing Public Goods Using Happiness Data: The Case of Air Quality," Working Papers gueconwpa~09-09-03, Georgetown University, Department of Economics.
    5. Bernard van den Berg & Ada Ferrer-i-Carbonell, 2007. "Monetary valuation of informal care: the well-being valuation method," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1227-1244.
    6. Ferreira, Susana & Moro, Mirko, 2009. "On the Use of Subjective Well-Being Data for Environmental Valuation," Stirling Economics Discussion Papers 2009-24, University of Stirling, Division of Economics.
    7. Nattavudh Powdthavee, 2010. "How much does money really matter? Estimating the causal effects of income on happiness," Empirical Economics, Springer, vol. 39(1), pages 7792-7792, August.
    8. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
    9. 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.
    10. Simon Luechinger, 2009. "Valuing Air Quality Using the Life Satisfaction Approach," Economic Journal, Royal Economic Society, vol. 119(536), pages 482-515, 03.
    11. KNIGHT, John & SONG, Lina & GUNATILAKA, Ramani, 2009. "Subjective well-being and its determinants in rural China," China Economic Review, Elsevier, vol. 20(4), pages 635-649, December.
    12. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
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