Written by Oliver Witty, Social Value Economist at Loop
Economic and Financial Modelling, Consultancy Support and Data Quality Assurance
In July 2021, Christmas came early for all wellbeing economists in the UK, as they received a brand-new gift from Jolly Ol’ HM Treasury. But what is it, I hear you ask?
Let me explain.
It is becoming more popular for economists to discuss worldwide development in terms of wellbeing. Such metrics, including the “subjective well-being U-index” and “gross domestic happiness” have been developed to capture this. In fact, some argue that economic development is only relevant if it improves the length and quality of life of a given individual. As Rosa Parks said, “Life is to be lived to its fullest so that death is just another chapter.”
But what is wellbeing and how can we effectively measure it?
On 26th July 2021, the HM Treasury Green Book supplementary guidance on wellbeing was published. The supplement provides a comprehensive overview of the theory and practical advice on wellbeing appraisal. It emphasises wellbeing as a key component in the assessment of costs and benefits to a society and introduces a simple, but effective measure of wellbeing – the WELLBY.
The “Wellbeing-adjusted Life Year” (WELLBY) is defined as a one-point change in life satisfaction on a likert scale between 0 to 10, for an individual for one year. This had been defined by Paul Frijters and Christian Kerkel in a 2020 draft report called “Wellbeing Policymaking in the UK.”
It validates the largely held view that life satisfaction is the most appropriate question to ask when measuring individual wellbeing. Often, this is accompanied with questions pertaining employment, education, and mental wellbeing – all of which are significant contributors to life satisfaction.
Chapter 5 pays particular attention to the practical implementation of wellbeing measurement and evaluation. Unsurprisingly, given its intangible nature, wellbeing can be interpreted and dealt with in many ways. Therefore, the guidance lays out key principles to use when estimating the causal effect (something that is generated based on an event that has already occurred) of a project on wellbeing . In other words, how many WELLBYs are generated from your project?
The WELLBY can be regarded as an all-encompassing valuation method that can be applied once the causal effects of a project are established. Previous methods for future valuations of welfare relied on expectations of utility, for example if you were to receive a gift in 5 years’ time, how would you feel about it? The WELLBY improves on this by using today’s valuation of welfare (which is known) and forecasting this over the expected number of years you will live.
Another advantage of the WELLBY is that the value of a one-point change is pegged to the “Quality-adjusted Life Year” (QALY). A QALY, often heard-of in health economics, is used frequently by the NHS to assess the cost effectiveness and value of medical interventions in a year. The QALY takes a value between 0 and 1, where 1 is one year of life in perfect health (no medical intervention).
So, based on the value of a QALY, 1 WELLBY is given a £13,000 valuation (according to 2019 price levels). This is a median valuation, where the upper and lower bound values are £16,000 and £10,000 respectively.
Layard and Oparina (2021) agree that the WELLBY approach is a feasible method of measuring wellbeing, as it combines this with the length of life, in other words, the value of life is based on the wellbeing it provides.
A good society is one which delivers long-lasting, enjoyable lives – and the WELLBY is here to measure it.
 These include using validated measures where possible and looking beyond present wellbeing (i.e. what is the net present value of wellbeing throughout the lifetime of the project?).
 Glossary | NICE
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