A Step towards Valuing Utility the Marginal and Cardinal Way

Paul Dolan, Daniel Fujiwara and Robert Metcalfe (rdm2176@columbia.edu)

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Income has a direct impact on our utility as well as an indirect impact through the goods, services and life events it allows us to purchase. The indirect effect of income is not properly accounted for in existing research that uses measures of cardinal utility for economic analysis. We propose a new approach for appropriately attributing the full effects of income on utility and we show the implications of our approach using a longitudinal dataset that contains reports of subjective wellbeing (SWB). We show that income has a much greater effect on SWB when indirect effects are considered. These results have important implications for how we value the marginal benefits of non-market goods and we explore some of these issues in the paper

Keywords: subjective well-being; utility; happiness; multicollinearity; income; non-market goods (search for similar items in EconPapers)
JEL-codes: A10 D6 D61 H41 I31 (search for similar items in EconPapers)
Date: 2011-07
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: A step towards valuing utility the marginal and cardinal way (2011)
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