Valuing Public Goods: The Life Satisfaction Approach

Abstract

"This paper discusses a novel approach to elicit people's preferences fornpublic goods, namely the life satisfaction approach. Reported subjective well-beingndata are used to directly evaluate utility consequences of public goods. The strengthsnof this approach are compared to traditional approaches and identification issues arenaddressed. Moreover, it is applied to estimate utility losses caused by terroristnactivities in France, the UK and the Republic of Ireland. Terrorism in these countriesndepresses life satisfaction in a sizeable and robust way. However, the calculation ofnthe trade-off between terrorism and income requires improved measurement of thenmarginal utility of income.