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Beyond GDP: Is there a law of one shadow price?

Author

Listed:
  • Fabrice Murtin

    (OECD)

  • Romina Boarini

    (OECD)

  • Juan Cordoba

    (Iowa State University)

  • Marla Ripoll

    (University of Pittsburgh)

Abstract

This paper builds a welfare measure encompassing household disposable income, unemployment and longevity, while using two different sets of “shadow prices” for non-income variables. The valuations of vital and unemployment risks estimated from life satisfaction data (“subjective shadow prices”) and those derived from model-based approaches and calibrated utility functions (“model-based shadow prices”) are shown to be broadly consistent once a number of conditions are fulfilled. Subjective shadow prices appear to be inflated by the downward bias on the income variable in life satisfaction regressions conducted at the individual level, while the latter bias is largely removed when running regressions at the country level. On the other hand, model-based shadow prices are typically underestimated as: i) the valuation of the unemployment risk is assumed to take place under the veil of ignorance (i.e. for a representative agent that has no information on her current or future unemployment situation); ii) the standard model relies on a Constant Relative Risk Aversion (CRRA) utility function, which has no specific relative risk aversion parameter for unemployment and vital risks; iii) the Value of Statistical Life that is used in standard calibration pertains to the adult lifespan while life expectancy at birth covers the entire lifetime. Les auteurs proposent une mesure du bien-être fondée sur le revenu disponible des ménages, le chômage et la longévité ainsi que sur deux ensembles de « prix implicites » de composantes non monétaires. Ils montrent que les valeurs attribuées au risque pour la vie et au risque de chômage, qui sont calculées à partir de données relatives à la satisfaction à l’égard de la vie (« prix implicites subjectifs ») ou découlent de l’application d’approches par modélisation et de fonctions d’utilité calibrées (« prix implicites obtenus par modélisation »), sont globalement cohérentes dès lors qu’un certain nombre de conditions sont réunies. Il apparaît que les prix implicites subjectifs sont surestimés en raison des erreurs de mesure affectant la variable revenu dans les régressions de la satisfaction à l’égard de la vie effectuées au niveau individuel, tandis que ce même biais est largement réduit dans les régressions effectuées au niveau des pays. À l’inverse, les prix implicites obtenus par modélisation sont généralement sous-estimés quand : i) on suppose que la valeur du risque de chômage est calculée « sous le voile de l’ignorance » (c’est-à-dire pour un agent représentatif qui ne possède aucune information quant à sa situation d’inactivité actuelle ou future) ; ii) le modèle type repose sur une fonction d’utilité à aversion relative au risque constante (CRRA), dans laquelle aucun des paramètres de l’aversion relative au risque ne concerne le risque pour la vie ou le risque de chômage ; iii) on utilise pour le paramétrage la valeur d’une vie statistique, laquelle correspond à la durée de la vie adulte tandis que l’espérance de vie à la naissance couvre toute la durée de la vie.

Suggested Citation

  • Fabrice Murtin & Romina Boarini & Juan Cordoba & Marla Ripoll, 2015. "Beyond GDP: Is there a law of one shadow price?," OECD Statistics Working Papers 2015/5, OECD Publishing.
  • Handle: RePEc:oec:stdaaa:2015/5-en
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    File URL: http://dx.doi.org/10.1787/5jrqppxzss47-en
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    References listed on IDEAS

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    Cited by:

    1. Arnaud Joskin, 2017. "Working Paper 04-17 - Qu’est-ce qui compte pour les Belges ? Analyse des déterminants du bien-être individuel en Belgique
      [Working Paper 04-17 - Wat telt voor de Belgen? Analyse van de determinante
      ," Working Papers 1704, Federal Planning Bureau, Belgium.
    2. Matthew Calver, 2016. "Measuring the Appropriate Outcomes for Better Decision-Making: A Framework to Guide the Analysis of Health Policy," CSLS Research Reports 2016-03, Centre for the Study of Living Standards.

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