With a well-established correlation between wellbeing and life satisfaction and life satisfaction and income, we have the elements needed to estimate the monetary value of social parameters such as depression, stress and loneliness.
In OSVB, you can find a number of social values that are valued from the above steps, based on English experiences and data. In the next update of OSVB, the values will gradually be based on Danish data.
Value of wellbeing change = [effect on life satisfaction] x [WELLBY]
We define the value of changes in life satisfaction (measured on a scale of 0-10) by the unit WELLBY. A one-point change corresponds to one WELLBY, per person per year. We monetize the value of a WELLBY by establishing individuals' willingness to pay for a change in life satisfaction. Willingness to pay can be established in different ways. In OSVB, we basically follow the approach used in the UK Treasury - Wellbeing Guidance for Appraisal: Supplementary Green Book Guidance1. In future versions of OSVB, we will work on establishing willingness to pay using specific Danish data and different methods, including discrete choice experiments and quasi-experimental approaches using existing survey and register data.
The method OSVB is based on uses the well-established measure QALY (quality adjusted life years) and examines what it equates to in terms of WELLBYs - i.e. how many WELLBYs correspond to one year of life. The UK Treasury shows that a QALY is associated with a 7 point change in life satisfaction (going from 8 to 1). In Denmark, we do not have a monetary value for a QALY. However, the Danish Ministry of Finance has valued the "Value of a life year" - a VOLY, which is based on the value of a statistical life2. The UK Treasury has chosen to value a QALY3 and a VOLY the same, so one VOLY equals one QALY. Based on this, it is assumed that the Danish VOLY value can be used to value our WELLBY. In 2021, the Danish Ministry of Finance valued the value of one year of life, one VOLY, at DKK 1.3 million per year4.
Based on the above assumptions, we can derive a Danish value for one point of life satisfaction.
Willingness to pay for a WELLBY = VOLY/(8-1) = £1,300,000/(8-1) = £185,714 (2021 prices)
A one-point change on the life satisfaction scale has a value of 186,000 DKK per person per year (2021 prices)
Note: As far as possible, we recommend that causal estimates are established.
Sources: 1UKTreasuryGreenbook2MinistryofFinance's documentation note on the value of static life and statistical life year (2019)3Ministry ofFinance's key figures catalog (2021) 4Ascoping study on the valuation of risks to life and health: the monetary value of a life year (VOLY).