Valuing the Environment Using the Life-Satisfaction Approach

Abstract

This paper presents a comprehensive theoretical and methodological framework clarifying the relationship between non-market environmental valuation techniques, in particular hedonic and life-satisfaction methods. The paper shows how life-satisfaction scores can be used to test correctly the equilibrium condition in location markets required by the hedonic approach and that in the absence of equilibrium, the life-satisfaction approach is still a theoretically valid valuation technique. Valuation using the life-satisfaction approach suffers from caveats associated with the cardinalisation of utility, however. Using data from Ireland, we apply this framework to the valuation of amenities linked to respondents' dwelling areas using Geographic Information Systems (GIS).

Keywords: environmental valuation, life satisfaction, well-being, subjective well-being, hedonic pricing, location market, climate, air pollution, water pollution

JEL Classification: D1, I31, Q51, Q53, Q54