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Making wellbeing policies effective

5 October 2022



A new free ebook from the London School of Economics explores the wellbeing approach to public policy. This makes wellbeing as an explicit goal and puts people and their wellbeing at the centre of policy design. It recognises happiness and subjective wellbeing as the overarching good.

An overarching criterion

Most policymakers have multiple objectives, but they have to decide whether one policy is better than another. Policy A may have a bigger impact on one objective and Policy B on another. How to choose between the policies? There needs to be a single overarching criterion against which to judge the different outcomes. The paper argues that criterion should be the wellbeing of the people.

Over the last forty years, a new science of wellbeing has developed with sufficient evidence about the causes of wellbeing for this to become the stated objective of policy.

Policy appraisal

How would a policymaker choose the priorities for spending? Assuming that total public expenditure is set by political forces, the task is to spend this total in the way that produces the most wellbeing. This means choosing those policies which produce the most wellbeing per dollar spent.

There would be some cut-off value for the cost-effectiveness of policies, with policies only qualifying if their ratio of wellbeing-benefit to cost exceeds the cut-off. Similarly, the redistribution of income would only proceed until further redistribution began to reduce total wellbeing. Regulations would only be introduced when this would increase total wellbeing.

How does the wellbeing approach differ from traditional cost-benefit analysis?

With traditional cost-benefit analysis, benefits are measured in units of money. Unlike the traditional approach, the wellbeing approach can cover all public expenditure. By contrast, traditional cost-benefit analysis (CBA) can only be applied over a narrow range of issues where the benefits either have an actual price, or a value which is implicit in the choices people make. This condition is often not satisfied in health, social care, child protection, law and order and the environment.

However, traditional cost-benefit is still a valid way of measuring benefits in those areas where it can be applied. The two approaches are complementary and they can be combined by transforming the money measures of benefit (derived from traditional CBA) into wellbeing measures by multiplying them by the marginal impact of money on wellbeing.

The science of wellbeing

Analysis of major longitudinal survey results from Britain, Germany, Australia and the US revealed the following as key determinants of wellbeing: mental health, physical health, employment, quality of work, relationships, income and education.

Research also shows that when it comes to wellbeing, policymakers should give higher priority to the services which sustain mental health, physical health, child development, family life and elderly care. It is the social infrastructure which matters most, not the physical infrastructure.

Many policies affect the length of life. A measure of the impact of wellbeing policies needs to take this into account. The question is how. If we want people to have lives which are long and full of wellbeing, the simplest approach is to say that we want for each individual the maximum total wellbeing-years where we add up the wellbeing in each year of their life. An acronym for wellbeing-years is WELLBYs. The aim is for each life to have the largest possible number of WELLBYs.

At present the value of life in terms of money is derived from one of two methods:

  • People’s preferences revealed by how much more they would need to be paid to do a job with a higher risk of death.
  • People’s stated preferences when asked what they would pay for a reduced risk of death.

By contrast, the wellbeing approach is very simple – it simply examines the change in WELLBYs. It also yields a very different trade-off between money and life-years from that implied by traditional methods.

Research has shown that wellbeing has a positive impact on other aspects of life, including:

  • education: making children happier makes them learn better
  • health: wellbeing predicts longevity as well as a medical diagnosis does
  • productivity: greater wellbeing increases productivity
  • family and social cohesion: happy people create more stable families, and happy people are more pro-social.

The bottom line

An approach putting people and their wellbeing at the centre of policy design recognises happiness and subjective wellbeing as the overarching good. It makes it the key criterion against which to judge the merit of different policy outcomes.

This can lead to a radical shift in policy priorities because happiness research increases focus on social infrastructure policies and services relative to the past priorities around economic infrastructure and long-term growth.

Want to read more? 

Wellbeing: Alternative policy perspectives – Timothy Besley and Irene Bucelli, LSE Press, September 2022 

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Published Date: 5 October 2022