8 A newer, 'subjective well-being approach' has been gaining currency in recent years. The life satisfaction approach' looks at people's reported life satisfaction in surveys such as the ONS's Integrated Household Survey, which began including questions on respondents' subjective well-being in April 2011. The life satisfaction approach uses econometrics to estimate the life satisfaction provided by certain non-market goods, and coverts this into a monetary figure by combining it with an estimate of the effect of income on life satisfaction.
9 At the moment, subjective well-being measurement remains an evolving methodology and existing valuations are not sufficiently accepted as robust enough for direct use in Social Cost Benefit Analysis. The technique is under development, however, and may soon be developed to the point where it can provide a reliable and accepted complement to the market based approaches outlined above. In the meantime, the technique will be important in ensuring that the full range of impacts of proposed policies are considered, and may provide added information about the relative value of non-market goods compared with each other, if not yet with market goods.2
10 A second approach, where a direct assessment of the value of a benefit or cost is particularly uncertain, is to make reference to the costs of preventing the loss of or replacing, a non-marketed good (such as a natural habitat or recreational facility). This does not provide a measure of its value but can provide a figure to focus discussion upon whether the good is worth as much as this expenditure.
11 In the absence of an existing reliable and accurate monetary valuation of an impact, a decision must be made whether to commission a study, and if so, how much resource to devote to the exercise. Key considerations that may govern a decision to commission research are:
❑ Tractability of the valuation problem: whether research is likely to yield a robust valuation;
❑ Range of application of the results of a study to future appraisals;
❑ How material the accuracy of the valuation is to the decision at hand. This may be gauged through sensitivity analysis around a range of plausible estimates; and,
❑ Scale of impact of the decision at hand. If the decision relates to a multi-billion pound programme or to regulation that will impose costs of similar scale upon industry it is clearly worth devoting much more resource to ensuring that the valuations of the non-market benefits (and costs) are accurate than would be appropriate for a smaller scheme.
12 It is often difficult to assess the reliability of estimates emerging from a single study using a single method. Valuations may be unreliable because responses to questionnaires may be inconsistent or biased, or because valuations may take insufficient account of budget constraints. Estimates can be given more credence if different methods, or studies by different researchers, give similar results.
13 When using any technique, it is advisable to provide a range of values, and to subject the estimated values to a plausibility check with decision makers. The minimum or maximum valuation of a benefit or cost that would support a particular decision ('switching value') should be made explicit, compared with the real or implied valuations derived from previous decisions, and qualified by a statement of the robustness of the valuation techniques employed.
14 Finally, there may always remain significant impacts that cannot sensibly be monetised. Sometimes, they can nonetheless be quantified in non-monetary units. Otherwise, they can be described in qualitative terms. Whatever the case, material costs and benefits that cannot be valued in monetary terms should clearly be taken into account in the presentation of any appraisal or evaluation. Chapter 5 contains guidance on considering unvalued costs and benefits, including Multi Criteria Decision Analysis.
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2 A fuller discussion of the life satisfaction approach can be found in the Green Book discussion paper Fujiwara and Campbell (2011), Valuation Techniques for Cost Benefit Analysis: Stated Preference, Revealed Preference and Subjective Well-Being Approaches', available on the HMT website: http://www.hm-treasury.gov.uk/d/green_book_valuationtechniques_250711.pdf