The WELLBY cost-benefit methodology

The WELLBY cost-benefit methodology will soon become a standard tool for policy development and evaluations in the state bureaucracy of most OECD countries.

  •  Professor Daniela  Andrén

    Professor Daniela Andrén
    Senior Lecturer, Örebro University School of Business
    Agree
    "If the current and future use of WELLBYs is to be effectively analyzed, we need to understand HOW and WHY they became essential to policymakers and professionals. Learning from the history of QALYs (quality adjusted life years) that are central to healthcare decision-making, the roles of individuals or institutions can be describe as policy entrepreneurs! The pharmaceutical industry played an important role supporting, developing and using the QALY cost-benefit methodology! engaging with appropriate experts in the development of new policy at an early stage in the process; and the importance of relations and negotiations, i.e., politics. "

  •  Doctor Tony  Beatton

    Doctor Tony Beatton
    Visiting Fellow, Queensland University of Technology (QUT)
    Neither agree nor disagree
    Other than the mention of the UK & New Zealand, the notion of a "wellby" appears to have little traction in other countries. The statistics bureaus of the following countries do not mention a "wellby": Australia; India, China; France; Germany, or; the USA. While a search of the OECD site reveals over 800 hits for "wellbeing', there are none for "wellby". A search of the academic databases is similarly futile: no hits for EconLit, or; All databases. JSTOR reveals one hit for the work of Professor Paul Frijters. Does this mean the wellby is a sleeper? Maybe. A general search on Google reveals thousands and thousands of "wellby" hits. Many are on social media, but. perhaps my "wellby" search is being confused will the many and prolific Wellby's who are authors, or the Wellby Financial company, or; the Womens Wellby Centre. Confusing...

  •  Professor Daniel  Benjamin

    Professor Daniel Benjamin
    Associate Professor of Economics, University of Southern California
    Neither agree nor disagree
    Given the widespread interest, it is quite possible, but there may be substantial resistance to relying on the methodology to the same extent as more traditional methodologies.

  •  Professor Martin  Binder

    Professor Martin Binder
    Professor of Socio-Economics at Bundeswehr University Munich
    Neither agree nor disagree
    I do not think we are quite there yet.

  •  Professor Ada  Ferrer-i-Carbonnell

    Professor Ada Ferrer-i-Carbonnell
    Professor of Economics, IAE-CSIC
    Neither agree nor disagree
    I think that there is a good chance that governments would start using the WELLBY methodology in those circumstances in which they are currently using other CBA measures.

  •  Professor Gigi  Foster

    Professor Gigi Foster
    Associate Professor and Undergraduate Coordinator, School of Economics, UNSW Business School
    Agree
    The answer depends on both the appeal and carry of the concept itself, and the definition of "soon". With the adoption of the WELLBY in the UK and New Zealand, other countries will surely consider adopting the methodology seriously in order not to be seen as behind the times. The appeal of the WELLBY as, if not a complete replacement for GDP in the short run, at least a significant "alternative metric", is very strong: it more clearly counts things that matter for people's happiness, it is more "relatable" to the common man (useful for politicians), we know from a heap of prior research what sorts of interventions drive WELLBYs (i.e., life satisfaction) up and down, meaning there is a stronger connection to policy implications, and it aligns better with the core maximand of economics (i.e., human welfare). The big-business lobby that might find material incentives to retain GDP as the standard metric will be hard-pressed to argue the case that profits are more important than happiness (or whatever similar line would be very predictably run against them). The main arguments I expect to hold sway against the WELLBY are (1) unlike GDP, countries haven't been reporting it de rigueur for years, and (2) it is self-reported and hence some people may say they don't trust it to measure something objective. Both of these arguments have good answers and i expect those answers to eventually win the day. Soon? Meh. I might estimate that within five years a majority of OECD countries will be actively considering it or will already have adopted it.

  •  Professor Paul  Frijters

    Professor Paul Frijters
    Professorial Research Fellow, CEP Wellbeing Programme, London School of Economics
    Agree
    I certainly hope so! But in all seriousness, it is the only tool available at the moment for bureaucracies who want to do wellbeing-inclusive cost-benefit analysis. Through the WELLBY the environment and social concerns also get a much higher weight in decision making than they do in classic economic cost-benefit analysis, so I think there will be a lot of pressure on bureaucracies to adopt this kind of methodology.

  •  Professor Arthur  Grimes

    Professor Arthur Grimes
    Chair of Wellbeing and Public Policy, School of Government, Victoria University of Wellington
    Agree
    The WELLBY approach is likely to be adopted by an increasing number of OECD and other countries as one element contributing to policy analysis. Those of us who are comfortable with treating evaluative subjective wellbeing as a useful summary statistic to indicate a person's utility, and who adopt a broadly utilitarian philosophical stance, will welcome the WELLBY approach. However, others involved in policy may: (a) not be satisfied with the technical merits of evaluative SWB measures, and/or (b) not ascribe to a utilitarian philosophical stance. These policymakers and advisors may oppose (or ignore) the use of WELLBYs for policy analysis. The most likely trajectory is one of gradual acceptance of the WELLBY approach both within and across countries.

  •  Professor Arie  Kapteyn

    Professor Arie Kapteyn
    Professor of Economics, University of Southern California
    Completely disagree
    This way overestimates the speed at which bureaucracies work

  •  Professor Christian  Krekel

    Professor Christian Krekel
    Assistant Professor in Behavioural Science, London School of Economics
    Agree
    I am convinced that the WELLBY cost-benefit and cost-effectiveness methodologies will become a standard tool for policy apprails and evaluations. The reason why I am choosing "Agree" over "Completely Agree" are the words "soon" and "OECD countries": while I think that this will eventually happen, I think that it will not be "soon" (but rather, in ten to fifteen years, after which the WELLBY cost-benefit and cost-effectiveness methodologies will be seen as equal to current methods). This is because the OECD is promoting their own wellbeing framework. However, it seems that more and more countries are realising that the OECD wellbeing framework, whilst appropriate for helping us to think about wellbeing, is not practicable for making policy trade-offs. This is why we see countries like New Zealand becoming more interested in the WELLBY - I think that this is a good development. As I said, not "soon" rather in "mid-term".

  •  Professor Guy  Mayraz

    Professor Guy Mayraz
    Lecturer, University of Sydney
    Disagree
    "Standard cost-benefit analysis is used primarily in small-scale decisions, where its problems are not that important, and where WELLBY is irrelevant. Large-scale decisions that involve complicated trade-offs are determined not by any sort of technocratic calculation, but by the preferences of voters and of other powerful players. The role of cost-benefit analysis in such decisions is as a tool by the Treasury in internal government debate, where its perceived objectivity is a great advantage. It is difficult to see where WELLBY would fit in. "

  •  Professor Jordi  Quoidbach

    Professor Jordi Quoidbach
    Associate Professor of Behavioral Decision Making in the Department of People Management, ESADE Business School
    Neither agree nor disagree
    The tool has promises but also relies on a series of debatable assumptions

  •  Professor Ronnie  Schob

    Professor Ronnie Schob
    Professor, School of Business and Economics, Freie Universitat Berlin
    Neither agree nor disagree
    Although it is a promising approach, there are still too many open questions

  •  Professor William  Tov

    Professor William Tov
    Associate Professor of Psychology at Singapore Management University
    Neither agree nor disagree
    It is an interesting approach but too soon to tell. I suspect many policymakers will want to see clear evidence that it leads to better, impactful decisions. Despite increasing interest in well-being indicators, many decision makers remain skeptical.

  •  Professor Ruut  Veenhoven

    Professor Ruut Veenhoven
    Professor of Sociology, Erasmus University Rotterdam
    Agree
    WELLBY denotes a long-term goal for social policy. The concept is clear, well measurable and has public appeal. Another name for the same is 'Happy Life Years' (HLY)

  •  Professor Heinz  Welsch

    Professor Heinz Welsch
    Professor of Economics, University of Oldenburg
    Disagree
    "I do not expect that the WELLBY cost-benefit methodology will become a standard tool in the state bureaucracy of most OECD countries outside the Anglo-British world because of differences in both fundamental ethical and political philosophies and the institutions that build upon them. Anglo-British countries have a strong utilitarian/welfarist tradition, on which cost-benefit analysis rests -- no matter whether being based on the WELLBY metric or otherwise. This does not seem to be the case in many other countries. In Germany, for instance, the constitution places a strong emphasis on inalienable rights of the individual (""Human dignity is inviolable"") irrespective of any welfarist considerations. This rules out, e,g., the death penalty, even if its introduction were to raise average life satisfaction. I understand that the WELLBY cost-benefit methodology, as endorsed in HM Treasurey (2021), is supposed to be applied to less fundamental issues than the above example (in areas such as health, education, mobility, communication, working conditions, local environment, public spaces, crime, public safety, and aesthetic and cultural issues). Yet, there was the proposal to apply it to, literally, a matter of life and death: the Covid-19 pandemic (Layard et al. 2020). Without taking a personal stance on this, I am sure that decisions pertaining to this will not be left to a ""bureaucracy"" on the basis of a formal WELLBY appraisal, given Germany's political philosophy and institutions. Indeed, several measures taken by the government to fight the pandemic were criticized as violations of the separation of powers, that is, an infringement of the prerogative of the parliament. The bottom line is that different traditions in political decision making will probably prevent application of the WELLBY approach outside of strictly limited areas. The limits consist of inalienable human rights and the separation of powers between the legislative and executive branches of the state. References: HM Treasury (2021), Wellbeing Guidance for Appraisal: Supplementing Green Book Guidance. Layard, R., Clark, A., De Neve, J.-E., Krekel, C., Fancourt, D., Hey, N., O'Donnell, G. (2020), When to release the lockdown: A wellbeing framework for analysing costs and benefits, Occasional Paper 49, Centre for Economic Performance."





The WELLBY cost-benefit methodology as it is now adopted by the UK and New Zealand bureaucracy will give a greater weight to mental health, social relations, and the environment in cost-benefit calculations than the classic economic methods it replaces.

  •  Professor Daniela  Andrén

    Professor Daniela Andrén
    Senior Lecturer, Örebro University School of Business
    Agree
    Thinking about the development and the application of the contingent valuation (CV) method and its application in health economics!! The CV method has been developed in environmental economics and is now the most commonly used method of measuring environmental benefits. The development of economic evaluation in the health care area was increasing very fast since the end beginning of the 1990s...

  •  Doctor Tony  Beatton

    Doctor Tony Beatton
    Visiting Fellow, Queensland University of Technology (QUT)
    Agree
    Traditional measures of societal progress certainly have limitations; just as the QALY has not replaced GDP, one cannot expect GDP and employment numbers to disappear in favour of something new. It is probably all the politicians and accountants understand. This is not to say there isn't room for something new, even better. The Wellby is certainly worthy of consideration. The problem will be to get Governments to listen. It has been hard enough to get them to consider Life Satisfaction; even the prompting of a couple of Nobel Prize winners, a Prime Minister and a President has proved unsuccessful over time. Maybe covid will help? When the gdp and employment numbers are meaningless due to societal/economic shutdowns, maybe the politicians can get re-elected if they focus on 'wellbeing numbers' instead of the billions of non-existent dollars flowing through the economy and their made-up employment numbers?

  •  Professor Daniel  Benjamin

    Professor Daniel Benjamin
    Associate Professor of Economics, University of Southern California
    Completely agree
    More traditional economic methods typically do not account at all for mental health and social relations, and only sometimes do they account for the environment. These factors all matter to some extent in the WELLBY methodology, especially mental health.

  •  Professor Martin  Binder

    Professor Martin Binder
    Professor of Socio-Economics at Bundeswehr University Munich
    Completely agree
    It definitely has the potential to do so!

  •  Professor Ada  Ferrer-i-Carbonnell

    Professor Ada Ferrer-i-Carbonnell
    Professor of Economics, IAE-CSIC
    Completely agree
    "Sometimes current CBA calculations give some weight to environmental issues, but mostly these calculations do not take into account mental health, social relations as well as any aspects that is important to individuals self-reported wellbeing. For example, during Covid19, and only not always very systematically through CBA, governments took decisions making trade-offs between the economy and the number of people in hospitals. They however ignored important issues, notably mental health. If they would have used a WELLBY approach, we would now we in much better shape and mental health would not have deteriorated as much as it did. "

  •  Professor Gigi  Foster

    Professor Gigi Foster
    Associate Professor and Undergraduate Coordinator, School of Economics, UNSW Business School
    Completely agree
    "There is just no contest here. It is worth remarking that if we move to a world where a search for WELLBYs is what drives policy, we will need to temper the temptation to give ourselves over entirely to utilitarianism. Taken to an extreme and used as the sole guidepost for policy, utilitarianism can lead to decisions that would be undesirable, like giving all organs that come in to a hospital to young white women."

  •  Professor Paul  Frijters

    Professor Paul Frijters
    Professorial Research Fellow, CEP Wellbeing Programme, London School of Economics
    Completely agree
    This is an inherent feature of the methodology for the simple fact that neither the environment nor social relations have much weight in willingness-to-pay measures (including market prices) that dominate the old methodology. People do not buy friends or their children, nor are they immediately aware of the value of greenery and clean air, so such things lose out in existing cost-benefit analyses. A wellbeing oriented framework forces the analysts who do cost-benefit analyses to look much more seriously at what improves wellbeing, and the answer turns out to give a large weight on social relations and the environment. Using the WELLBY thus teaches the economists and others who do cost-benefit analysis the value of social life and a good environment.

  •  Professor Arthur  Grimes

    Professor Arthur Grimes
    Chair of Wellbeing and Public Policy, School of Government, Victoria University of Wellington
    Agree
    Conceptually, social CBA already incorporates factors such as mental health, social relations and the environment into a CBA. Hence, at a conceptual level, the WELLBY approach does not extend the scope of analysis. However, the WELLBY approach provides a practical way of incorporating some of these non-market factors which may have previously been difficult to measure using other techniques (e.g. via discrete choice analysis). This practical contribution may therefore lead to an increase in the explicit weighting given to some previously difficult to measure factors.

  •  Professor Arie  Kapteyn

    Professor Arie Kapteyn
    Professor of Economics, University of Southern California
    Neither agree nor disagree
    I am unsure if it will literally replace anything else. It may just be an added measure, which is probably useful

  •  Professor Christian  Krekel

    Professor Christian Krekel
    Assistant Professor in Behavioural Science, London School of Economics
    Completely agree
    Without doubt: these are intangibles, and the WELLBY captures and values such intangibles much better than attempts to put a monetary price tag onto things like social relationships, depression, or the environment. We know that these intangibles are incredibly important for wellbeing - in many developed countries more so than income - so WELLBYs have a natural, competitive advantage over prices here.

  •  Professor Guy  Mayraz

    Professor Guy Mayraz
    Lecturer, University of Sydney
    Completely agree
    Mental health, social relations, and the environment are not well measured by standard cost-benefit analysis, would be given a greater weight by WELLBY. In addition, much consumption would be discounted by WELLBY (the "Easterlin Discount"), which would further have the impact of giving extra weight to mental health, social relations, and the environment.

  •  Professor Jordi  Quoidbach

    Professor Jordi Quoidbach
    Associate Professor of Behavioral Decision Making in the Department of People Management, ESADE Business School
    Completely agree
    "People think income explains about 40% of who's happier or less happy than average. But in fact, it explains almost nothing: 1%. Mental health and social relationships, on the other hand, play a huge role in people's well-being. By focusing on actual wellbeing rather than abstract preferences, these factors will gain more weight with the WELLBY approach. "

  •  Professor Ronnie  Schob

    Professor Ronnie Schob
    Professor, School of Business and Economics, Freie Universitat Berlin
    Agree
    It provides a more comprehensive account of the overall effects

  •  Professor William  Tov

    Professor William Tov
    Associate Professor of Psychology at Singapore Management University
    Neither agree nor disagree
    In theory, I believe it should give greater weight to mental health and social relations because we know that well-being indicators track these issues pretty strongly. However, what the methodology is sensitive to and what policymakers end up deciding to do are two different things. WELLBY measures that combine self-reported well-being with life expectancy indicators are interesting to consider in the context of the pandemic. Governments that opted for lockdowns, safe distancing, and minimizing social interactions to contain the spread of the virus could be seen as focusing primarily on health and maximizing life expectancy rather than optimizing subjective well-being necessarily. In contrast, in some parts of the U.S. where such measures were controversial and seen as violation of autonomy and freedom -- could it be said that local governments were in some way prioritizing well-being over life expectancy? In either case, would governments have responded differently if a WELLBY approach were more salient? I'm not so sure.

  •  Professor Ruut  Veenhoven

    Professor Ruut Veenhoven
    Professor of Sociology, Erasmus University Rotterdam
    Agree
    The use of WELLBY as a metric for policy evaluation will draw more attention to mental heatlh and social bonds, since these are important determinants of health and happiness. The use of WELLBY as a policy goal will not generate more attention for environmental protection if that is not instrumental to human health and happinesd

  •  Professor Heinz  Welsch

    Professor Heinz Welsch
    Professor of Economics, University of Oldenburg
    Agree
    A clear message from wellbeing research is that material factors of life (absolute levels of wealth) are much less important to wellbeing than are (mental) health, social relations, and the environment. The WELLBY methodology will therefore give greater weight to those latter concerns relative to income, consumption, and economic growth.

Of our 16 panel members, 6 agreed with Statement 1 (none “completely agreed”), while 3 disagreed or completely disagreed; 7 were neutral.

Reasons for agreement included the conceptual and practical merits of the concept and its ability to aid policymakers in prioritising investments (unlike some other wellbeing approaches such as the dashboard approach of the OECD):

  • Relative to GDP, WELLBYs (i.e. life satisfaction) have a “stronger connection to policy implications” and align better with the core maximand of economics (i.e. human welfare)” (Gigi Foster).
  • “The concept is clear, well measurable and has public appeal”(Ruut Veenhoven).
  • “It seems that more and more countries are realising that the OECD wellbeing framework, whilst appropriate for helping us to think about wellbeing, is not practicable for making policy trade-offs” (Christian Krekel).
  • “It is the only tool available at the moment for bureaucracies who want to do wellbeing-inclusive cost-benefit analysis” (Paul Frijters).

Some of those who agreed, however, questioned the pace at which the WELLBY approach may be adopted by the bureaucracy:

  • Given that some policymakers will not be satisfied with its technical merits or may not ascribe to a utilitarian philosophical stance, “the most likely trajectory is one of gradual acceptance of the WELLBY” (Arthur Grimes).
  • “While I think that this will eventually happen, … it will not be ‘soon’ (but rather, in ten to fifteen years, after which the WELLBY cost-benefit and cost-effectiveness methodologies will be seen as equal to current methods” (Christian Krekel).
  • It may also take actions of policy entrepreneurs for WELLBYs to gain acceptance: “The pharmaceutical industry played an important role supporting, developing and using the QALY cost-benefit methodology!” (Daniela Andren).

Reasons for disagreement included both practical factors and a view that WELLBYs are tied to a specific philosophical approach which may not be shared widely:

  • “This way overstates the speed at which bureaucracies work” (Arie Kapteyn).
  • The WELLBY is irrelevant for small-scale decisions, while “large-scale decisions that involve complicated trade-offs are determined not by any sort of technocratic calculation, but by the preferences of voters and of other powerful players” (Guy Mayraz).
  • “Anglo-British countries have a strong utilitarian/welfarist tradition, on which cost-benefit analysis rests – no matter whether being based on the WELLBY metric or otherwise. This does not seem to be the case in many other countries” which place greater emphasis on “inalienable rights of the individual … irrespective of any welfarist considerations.” Decisions such as policy reactions to Covid-19 “will not be left to a bureaucracy on the basis of a formal WELLBY appraisal” (Heinz Welsch).

Many of those who were neutral similarly argued that, while the concept has merits, policymakers may be wary to adopt it – either because of the assumptions on which it is built (Jordi Quoidbach) or because they will be cautious in the short term (Dan Benjamin, Tony Beatton, William Tov):

  • “There are still too many open questions” (Ronnie Schoeb).
  • “I do not think we are quite there yet” (Martin Binder).

There was broader agreement with Statement 2, with 8 panel members “completely agreeing”, 6 “agreeing,” and 2 who “neither agreed not disagreed”. No panel member disagreed with the statement.

Reasons for agreement included the inherent breadth of factors that contribute to life satisfaction and hence to WELLBY calculations, and the practicality of using life satisfaction to incorporate these factors into policy analysis:

  • “Sometimes current CBA calculations give some weight to environmental issues, but mostly these calculations do not take into account mental health, social relations as well as any aspect that is important to individuals’ self-reported wellbeing.” Without WELLBYs, some of these factors may be missed. “For example, during Covid19, governments took decisions making trade-offs between the economy and the number of people in hospitals. They however ignored important issues, notably mental health” (Ada Ferrer-i-Carbonell).
  • “Mental health and social relationships … play a huge role in people's well-being. By focusing on actual wellbeing rather than abstract preferences, these factors will gain more weight with the WELLBY approach” (Jordi Quoidbach).
  • “More traditional economic methods typically do not account at all for mental health and social relations, and only sometimes do they account for the environment. These factors all matter to some extent in the WELLBY methodology, especially mental health” (Dan Benjamin).
  • “Conceptually, social CBA already incorporates factors such as mental health, social relations and the environment into a CBA. … However, the WELLBY approach provides a practical way of incorporating some of these non-market factors which may have previously been difficult to measure (Arthur Grimes).
  • “Much consumption would be discounted by WELLBY (the ‘Easterlin Discount’), which would further have the impact of giving extra weight to mental health, social relations, and the environment” (Guy Mayraz).
  • “The WELLBY captures and values such intangibles much better than attempts to put a monetary price tag onto things like social relationships, depression, or the environment. We know that these intangibles are incredibly important for wellbeing … so WELLBYs have a natural, competitive advantage over prices here” (Christian Krekel).
  • “A wellbeing oriented framework forces the analysts who do cost-benefit analyses to look much more seriously at what improves wellbeing, and the answer turns out to give a large weight on social relations and the environment” (Paul Frijters).

Of those who remained neutral, comments included that WELLBYs may constitute an added measure (Arie Kapteyn) but the real test would be whether policymakers decide to use the information from WELLBYs in their actual policy decisions (William Tov). As an illustration, Tov asks whether governments would have responded differently if a WELLBY approach had been more salient? Nevertheless, it was also noted that contingent valuation methods have broken through into the mainstream and are now widely accepted in health and environmental applications (Daniela Andren). 

Even some who agreed with Statement 2, were cautious about the concept gaining the attention of governments:

  • “The problem will be to get Governments to listen. It has been hard enough to get them to consider Life Satisfaction; even the prompting of a couple of Nobel Prize winners, a Prime Minister and a President has proved unsuccessful over time” (Tony Beatton).

Panel members shared several other insightful comments.

Gigi Foster, for instance, warned against exclusive reliance on policymaking based on utilitarianism, lest this approach favours policies that most help the already advantaged.

Other comments by panel members included that while the use of WELLBYs will draw more attention to mental health and social bonds, which are important determinants of health and happiness, its use “will not generate more attention for environmental protection if that is not instrumental to human health and happiness” (Ruut Veenhoven).

Finally, a word of advice from Guy Mayraz for those who favour the introduction of WELLBYs for policy analysis: “The question about the future of WELLBY and similar ideas in the actual conduct of government could benefit from participation by people with experience in government. The theoretical advantages and disadvantages of WELLBY are only of secondary importance for this practical question.”