New Economy Journal

The Role of Wellbeing Valuation in Building a Wellbeing Economy

Volume 4, Issue July 2023

July 4, 2023

By - Min Seto

Piece length: 1,870 words

Article Theme : Rethinking Value

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There is growing recognition by individuals and organisations around the globe, that the current economic system does not prioritise the wellbeing of people or the planet. Governments have relied on Gross Domestic Product (GDP) as a measure of economic health for decades, but its global use as an indicator of societal progress is becoming increasingly challenged by policy makers. In response, an increasing number of governments are implementing Wellbeing Frameworks as an alternative way to measure societal progress instead of relying on GDP alone. These frameworks are structured with a range of domains that contribute to people's wellbeing, measured via a set of indicators that allow policymakers to track progress. However, these wellbeing frameworks are only effective when they are embedded within a government’s strategic planning and budgetary processes; it is difficult to integrate wellbeing frameworks into governments when improvements in wellbeing are not quantified nor prescribed any tangible value. Therefore, there is a need to assign a quantitative value to wellbeing so that it can become central to policymaker decisions. This article will explore the concept of wellbeing valuation and how it can help us achieve a more equitable and sustainable future.

What’s Wrong with Gross Domestic Product (GDP)?

Since the Great Depression, governments have used GDP as the measure of a country’s economic health. In simple terms, GDP measures a country’s production of goods and services over a particular period of time. It has become a standardised measure, used globally to measure a country’s economic progress, and has been used as a benchmark between countries. During the post Depression era, GDP was a relevant and useful tool to measure growth and inform policy; however,  it has mistakenly come to be synonymous with achieving societal progress, and used as the main measure of progress which informs economic decisions.

While GDP measures the production of goods and services, it fails to consider the distribution of wealth within a country. A focus on GDP as the primary measure of a country’s progress has resulted in increasing inequality and a failure to address the basic needs of many people, such as their access to healthcare, food, and shelter. A country may have high GDP, and seemingly be ‘doing well’, but its citizens may face inequality and struggle to access basic services.

The Rise of Wellbeing Frameworks

Recognising these issues of inequality, some governments have begun to implement  wellbeing frameworks. These frameworks consider the overall wellbeing of people—instead of just focusing on economic growth—measuring progress in domains such as employment, income equality, housing, individual and planetary health (see New Zealand’s Living Standards Framework as an example). While GDP remains the standard measure used globally, the shift toward wellbeing frameworks signals a growing recognition among policymakers that a focus on economic growth alone is not sufficient to create good policy. As such, governments  need to consider how wellbeing is valued to ensure that policy and budget decisions align with the goal of improving the overall wellbeing of people and the planet.

In the October 2022-23 Federal Budget Paper No. 1, the Australian Government Treasury argued that,

Measuring what matters is important for tracking and achieving progress. A coherent and comprehensive framework would help us better understand our economy and society, and would support more informed policymaking and improved accountability.

While these are good aspirations I’m sure most people would agree with, there are challenges in trying to operationalise wellbeing frameworks so that they become central to the decisions of policymakers. First, a government must develop a wellbeing budget which allocates resources towards policies and programs that contribute to the wellbeing outcomes they are measuring. The difficulty arises when governments must choose between competing programs that deliver different  outcomes when they have not been quantified in a shared metric. For example, how do governments  decide between investing in mental health treatment for Veterans and employment programs for people with a disability—when both improve the wellbeing of people? These decisions cannot be made on cost alone.

Cost Benefit Analysis in Decision Making

Currently, governments use a methodology called Cost Benefit Analysis (CBA) when trying to make transparent decisions about major budget spend. For example, if a government is going to invest in new infrastructure which is above a prescribed cost threshold, they are required to conduct a CBA to demonstrate that the initiative is of net benefit to society. In simple terms, this process compares all of the costs of the project to all of the benefits created by the project, in the hope that the benefits to society will be greater than the costs. This approach can also be used to make decisions between different options for a project, or decisions about entirely different initiatives, because the costs and benefits are all compared in dollar terms.

This is unfortunately not a perfect science, as some costs and benefits are not quantified in monetary terms and so cannot be included in the analysis. This often results in these “non-market goods” (anything that can’t be bought or sold in a market) being mentioned in an appendix to the CBA as something to be considered, but in essence, they are left out of the financial equation and therefore the decision making.

Hindsight shows that failure to consider these non-market goods has resulted in some poor  decisions being made. We have seen business permits granted to companies even though their business activity creates damage to the air quality, waterways, land, community health and biodiversity. These permits were supported by CBAs that only considered the economic costs and benefits of the project and failed to monetise the cost of negative consequences to the environment or society. In 2022 we saw a “historic ruling when a Queensland court stated that a coal project should not go ahead because of its contribution to climate change, its environmental impacts, and because it would erode human rights.”

There is very little transparency in how budgets are allocated for the delivery of social outcomes. CBA has not been used to justify investment in these programs, as the social outcomes that are being funded are “non-market goods” so cannot be considered against the cost of the program unless monetised. Presumably, this means social programs are funded on the basis of it being “the right thing to do”, rather than on any objective data.

Under a wellbeing framework, how are transparent policy decisions made, especially when comparing different initiatives that may improve the wellbeing of different groups in society? We cannot risk these decisions being made based on the skills of different lobbying groups or bartered for potential political gains.

If we assign these “non-market goods” a monetary value, they go from being an afterthought to holding weight in decision-making. For example, the estimated Social Costs of Carbon (SCC) are now included in environmental cost-benefit analysis, by measuring the current monetary value of damages per 1 tonne of CO2 or other Greenhouse Gases emitted at a given point in time. For further details on valuation techniques for ecosystems refer to the OECD’s Cost-Benefit Analysis and the Environment: Further Developments and Policy Use.

Wellbeing Valuation

The valuation of social outcomes allows them to be compared in equal terms and  included in cost-benefit analysis. There are several methodologies for valuation that are accepted by governments across the Organisation for Economic Co-operation and Development (OECD). Work in this field is emerging, and methodologies continue to develop and be improved upon.

One of the newer methodologies that is gaining traction for use in cost-benefit analysis globally is Wellbeing Valuation. This approach uses econometric techniques to estimate the effect a particular outcome has on a person’s subjective wellbeing and then converts this into monetary terms by estimating the amount of additional  income that would produce the same amount of impact on their subjective wellbeing. For an in-depth explanation of the wellbeing valuation technique please refer to the Australian Social Value Bank’s Measuring Social Impact, The Technical Reference Paper.

Wellbeing valuation overcomes some of the criticisms of existing valuation methods for non-market goods, such as stated preference valuation. This method uses surveys to ask people how much they would be willing to pay for a positive outcome, or willing to forgo for a negative outcome. One of the main criticisms with this approach is the likelihood of hypothetical bias. This is where a respondent inflates the amount of money they would be willing to pay when considering a hypothetical situation, by as much as two or three times, compared to the amount they would actually pay in the real situation. Stated preference also  assumes that people are going to choose what is best for them. However, the field of behavioural economics demonstrates that people do not always make “rational” or “optimal” decisions, even if they have all of the necessary information to do so. Despite these concerns, the valuation approach has been used by economists for the past 40 years.

There are significant differences  in the thinking which underpins the two approaches. For example, if we wanted to understand the value of improving an individual’s overall health, the stated preference approach would seek to understand how much people would value having improved overall health, essentially asking how much they would be willing to pay to improve their overall health. This approach is known as “Willingness to Pay''.  Comparatively, the subjective wellbeing approach assesses the change “improved overall health” has on someone’s subjective wellbeing.

One of the main advantages of the Wellbeing Valuation approach is that it uses data based on people’s actual experiences. This avoids some of the issues seen with the “Willingness to pay” approach, such as the hypothetical bias. It is also a relatively cost-effective valuation methodology as it leverages the many existing datasets in Australia and globally which meet the data requirements necessary to conduct Wellbeing Valuation. This approach is therefore cheaper and arguably a more reliable way to value these non-market goods. Because the methodology is internally consistent, it also allows for the comparison of outcomes from across different policy areas, which has not previously been possible.  This is a huge step forward for program and policy analysis, which is critical in operationalising wellbeing budgets.

In Australia, the Australian Social Value Bank (ASVB) has been developed as a resource to support the measurement of social value created by programs and policies. The ASVB currently contains 76 wellbeing values which have been derived from Australian datasets, and can be applied within both CBA and SROI analysis. These values have been developed by global leaders in social value analysis, Simetrica-Jacobs. They can also be applied within the ASVB’s online Social Value Calculator which performs a simplified CBA, and can be used by any organisation to compare the social value created by different initiatives.


Methodologies like Wellbeing Valuation will help to operationalise wellbeing frameworks equipping governments and policy makers with a more holistic view  of initiatives, upon which to make informed decisions about budget allocation and policy analysis. While these wellbeing values do not ensure that the “best” decisions are always made, they do allow policy makers to consider the value of improvements in wellbeing within the current decision-making approach. Including the value of both social and environmental outcomes within government decision-making will help us move towards a more sustainable and socially just future.

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