Experienced wellbeing, income, and measurement of the value of non-market outcomes.
Public policy inevitably involves choices about which goals to prioritise. The standard economic framework for the ex-ante evaluation of public policy decisions is social cost-benefit analysis. Within this framework, identifying values for key public policy outcomes with no market price is of high importance if resources are to be directed to areas with the highest public benefit. Cost-wellbeing analysis involves using measures of subjective wellbeing – typically an evaluative measure such as life satisfaction – to estimate values for non-market outcomes. While traditional cost-wellbeing analysis is useful in many situations, there are some outcomes where evaluative measures are unable to provide useful information. This thesis focuses instead on the use of experienced wellbeing measures in cost-wellbeing analysis to obtain estimates for non-market outcomes where evaluative measures are not suitable or available.
Three key topics are considered. First, the thesis explores the conceptual and practical issues involved in using experienced wellbeing measures in cost-wellbeing analysis. A methodology is developed that addresses a key challenge in the use of experienced wellbeing measures in this context –the relatively weak relationship between income and experienced wellbeing and the key assumptions required for the validity of the proposed method are identified. A core part of this proposed methodology is to treat experienced wellbeing as a determinant of life satisfaction, which then allows the use of the income coefficient on life satisfaction in cost-wellbeing analysis.
The second part of the thesis focuses on the impact of income measurement on the relationship between income and life satisfaction. A unique New Zealand dataset containing both self-reported income measures and an employer-reported income measure is used to explore whether differences in how income is measured impacts the estimated relationship between income and life satisfaction. This relationship is fundamental to cost-wellbeing analysis, as it is used to transform the estimated impact of a non-market outcome on life satisfaction into a meaningful dollar value.
The final part of the thesis applies the methodology developed earlier to value three different aspects of urban green space: forest cover, semi-natural grassy areas, and proximity to the nearest park. Values for the first and last of these outcomes are available from the existing social cost-benefit analysis literature based on traditional valuation techniques and are used to test the validity of the experienced wellbeing valuation approach. The proposed approach to using experienced wellbeing measures to value non-market outcomes is found to produce plausible values and replicates patterns of relative prices found in the existing literature.
The main contributions of the thesis is developing a method for using experienced wellbeing measures to value non-market outcomes for cost-benefit analysis and validating this empirically, as well as testing the sensitivity of non-market valuations based on subjective wellbeing data to income measurement issues. Building on these findings, the thesis also sets out a research agenda for cost-wellbeing analysis relating both to the use of experienced wellbeing measures in this context and to the measurement of income.