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

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 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.

Using memories to assess the intrapersonal comparability of wellbeing reports

“…Finally, researchers are often interested how variables and can be traded off while maintaining constant levels of latent satisfaction . Such analyses are useful for computing shadow prices (Luechinger 2009;Danzer and Danzer 2016;Murtin et al 2017;Dolan et al 2019) or for estimating equivalence scales (e.g. Borah, Keldenich, and Knabe 2019;Kaiser 2020).…”

The impact of the Ebola crisis on mortality and welfare in Liberia

“…One possibility would be to estimate preference parameters over consumption and mortality directly using expanded household data sets. Murtin, Boarini, Cordoba, and Ripoll (2017) provide an interesting approach to this problem using life satisfaction data to estimate the WTP for improvements in survival conditions. This study has also shown that heterogeneities in consumption and survival conditions across the population may be a relevant factor in the calculation of welfare costs, even when differences in the latter are restricted to two groups (e.g., male and female) 24 .…”

Where is inclusive growth happening? Mapping multi-dimensional living standards in OECD regions

“…A third approach consists in identifying shadow prices through life satisfaction regressions. This is the approach used in the OECD Inclusive Growth framework (Murtin et al, 2015;OECD, 2014a). Based on this approach, the first step consists in running life satisfaction regressions at country level (panel), as follows:…”

“…Each of these indicators is expressed in different units and, as such, they are not directly comparable. The computation of MDLS is made possible by adopting an equivalent income or money-metric approach (Murtin et al, 2015), which requires the identification of shadow prices for the non-income dimensions (i.e. jobs and health) in order to convert them into monetary units.…”