Potential Use of the Life Satisfaction Approach to Value Nonmarket Goods and Services

Abstract

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Valuing disaster risk reduction neighborhood interventions in informal settlements of Latin American and the Caribbean

“…Similar to the stated preference and the reveled preference methods, the LSA also seeks to assess the economic value of a public good by finding the individual’s willingness-to-pay for it. However, instead of asking beneficiaries to think hard and assign a value to the good or service in question (state preference method), or eliciting a value from actual behavior in markets (reveled preference method), the LSA assess the willingness-to-pay by relating utility to both income and the consumption of public goods [ 1 ]. The LSA is based on the Hicksian compensating variation, or the amount of income that would need to be reduced to shift utility to the levels before the public good provision [ 18 ].…”

“…In the second step, we use the LSA by estimating the following linear regression model as it is traditionally used in the literature [ 1 , 2 , 17 ]: …”

“…The complexity of the evaluation impact arises from the number of project elements implemented, and their multidimensional impacts that span social, economic, and environmental benefits. Standard economic methods to value these interventions, such as stated and revealed preference methods, are expensive and have several problems that limit its use [1][2][3]. An alternative method with growing applications in health, environmental, hazard, and disaster research [3][4][5][6][7][8][9][10][11][12] is the Life Satisfaction Approach (LSA), which is based on Hicksian compensation to identify the variation of income that would be necessary to offset the utility change produced by an intervention [1].…”