Measuring life satisfaction

By Helen Dunn, Director of Policy & Analysis, Simetrica-Jacobs - on 10/08/2021

This blog, originally published on the Simetrica-Jacobs website, discusses the newly launched Green Book Supplementary Guidance which recommends Simetrica-Jacobs income coefficient to measure life satisfaction.

Last week, HM Treasury published new Green Book Supplementary Guidance on Wellbeing Guidance for Appraisal. It marks an important step in underlining the importance of wellbeing analysis as a lens through which to inform policy and provides the step-by-step guidance to implement in practice.

Since 2011 the Office for National Statistics has embarked on a Measuring Wellbeing programme and the 2020 update to the Treasury Green Book introduced wellbeing valuation as one of the recommended methods alongside existing economic valuation methods. The datasets and research on wellbeing now available have increased the scope to use wellbeing evidence across policy development.

Simetrica-Jacobs and CEO, Dr Daniel Fujiwara, have been an integral part of the development of wellbeing methodologies for appraisal in the UK having been involved in the 2011 Green Book update on valuation methodologies (Fujiwara and Campbell, 2011) and in the 2020 Green Book refresh. Our research has also taken a central and important role in the new recommendations set out in the new Green Book Supplementary Guidance on Wellbeing.

The guidance provides a detailed guide on using wellbeing analysis through the various stages of the policy cycle. It sets out recommendations on the use of wellbeing analysis and valuation in the policy appraisal stages to inform value for money analysis and options selection (the Economic Case) and it encourages the use of wellbeing evidence at the strategic stage (the Strategic Case).

For example, wellbeing evidence may help to identify the needs of those living in a particular area, which can help to inform policy options and, ultimately, investment decisions. The guidance draws attention to where wellbeing analysis can play a role including health, education, local environment, public spaces, crime, social cohesion and cultural issues – all areas that Simetrica-Jacobs’ work on wellbeing analysis has covered in its research for clients over many years.

The guidance also explores the different approaches for incorporating wellbeing impacts into policy appraisal used to inform policy decision-making. The preferred approach seeks to incorporate robust, causal estimates of wellbeing within cost benefit analysis, which involves translating wellbeing impacts into equivalent monetary values.

For income translation, the guidance recommends that a one-point change in life satisfaction be converted to a monetary value by multiplying it by £13,000 [Low: £10,000, High £16,000]. This is the recommended standard value of one wellbeing adjusted life year – a one-point change in life satisfaction for one year – a ‘WELLBY’. The low value for a WELLBY is provided by an approach that pivots off the Green Book value of a QALY (Quality Adjusted Life Year). 

The high value derives from the conservative approach to the use of income coefficients recommended within a recently published Simetrica-Jacobs Research Paper (Fujiwara and Dass 2021), which is cited directly in the Treasury updated guidance paper – a clear endorsement of the approach. The Simetrica-Jacobs paper covers the application of stated preference methods to estimate the causal effect of household income on life satisfaction in the UK.

Overall, this guidance presents an important step in mainstreaming the use of wellbeing analysis in policy, underscoring the importance of the use of rigorous, Green Book-compliant approaches, including those used in Simetrica-Jacobs research, projects and tools. Wellbeing valuation is compliant with the range of methods recommended for economic valuation and social value analysis and this guidance provides good support to understanding when it is suitable to use wellbeing valuation and best practice in undertaking this valuation approach. 

References

Fujiwara, D. and Dass, D. (2021). Incorporating Life Satisfaction into Discrete Choice Experiments to Estimate Wellbeing Values for Non-Market Goods. Simetrica-Jacobs Research Paper July 2021.

Fujiwara, D. and Campbell, R. (2011). Valuation Techniques for Social Cost-Benefit Analysis: Stated Preference, Revealed Preference and Subjective Well-Being Approaches. HM Treasury and DWP.

HM Treasury (Jul 2021). Wellbeing Guidance for Appraisal: Supplementary Green Book Guidance.

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