Can subjective well-being measures be used to value policy outcomes? The example of engagement in culture

Abstract

Economic analysis of public policy invariably requires the valuation of non-market goods. The methods conventionally relied on by economists to estimate these values are, however, subject to a number of limitations, both methodological and philosophical. Given these concerns, economists have identified alternative valuation methods, such as the use of subjective well-being (SWB) measures. SWB measures hold much promise, but face a number of challenges before they can generate policy relevant outcomes. This article illustrates these challenges by applying the SWB approach to the valuation of engagement in culture. An analysis of the British Household Panel Survey is undertaken to estimate the value of going to the cinema and attending concerts. The approach was divided into two steps. First, the SWB impact of engaging in culture was estimated. Both fixed effects and random effects models were employed, and an instrumental variable was used to control for the endogeneity of income. Second, the value of engagement was estimated as the income compensation (IC) that would generate an SWB impact equivalent to engaging in culture. Both the impact of engagement in culture on SWB and the corresponding IC are thought to be overestimates. Possible explanations for this are considered to illustrate the research that is required before the SWB approach can generate rigorous estimates of value that are useful to policy makers. First, further research is required on the relationship between income and SWB, including methods for dealing with the direct and indirect impact of income on SWB. Second, further work is required to develop reliable instrumental. Third, work is required to understand the temporal relationship between policy outcomes and SWB.