Valuation Techniques for Social Cost-Benefit Analysis: - HM Treasury

7 Conclusion
This paper serves as a response to a growing appetite in Government for well-being and social
impacts to be properly incorporated in to policy decisions. We have looked at three different
approaches to valuing important policy impacts. These approaches can be useful for measuring
values such as impacts on health, family and community stability, educational success, and
environmental assets. This is important because these types of impacts do not have a readily
available financial price, and can therefore be in danger of neglect in policy analysis.
The paper has discussed the main issues associated with the application of each approach. In
doing so it draws heavily on and provides a concise overview of the evidence from behavioural
economics and psychology. This complements the Green Book and other Government guides on
stated and revealed preference techniques. The paper also discusses the main challenges
associated with the implementation of the life satisfaction approach to valuation.
Traditional preference-based approaches have provided us with many valuations over the past
few decades which we have been able to use in policy analysis. They have also frequently
provided us with implausible estimates. The newer life satisfaction approach is, at the moment,
providing us with valuations which look implausibly high, but we are also in the process of
discovering more about what might be driving these implausible estimates and adjusting the
methodology as appropriate. This paper discusses the current evidence relating to the approach.
We have highlighted throughout, though, that even when valuations (and specifically those
being generated currently by the life satisfaction approach) fail to meet the standards for direct
inclusion in Social Cost-Benefit Analysis, they may still be useful in challenging decision makers
to think more carefully about the full range of impacts of their proposed policies. And they may
help decision makers to question the values that they may otherwise place implicitly on these
impacts. Even where we cannot robustly place these absolute valuations for non-market goods
alongside market valuations, they may still enable comparison of the relative value of different
non-market goods.
We now encourage departments to pursue further research relating to the valuation of nonmarket
goods, and specifically subjective well-being measurement in order to deliver a step
change in the way that previously ―hard to value‖ impacts of policy are accounted for.
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