Years of Good Life Based on Consumption and Health

Abstract

This chapter proposes a practical measure of individual well-being to facilitate the economic evaluation of public policies. The authors propose to evaluate policies in terms of years of good life gained, in a practical and flexible way that complements and builds upon the standard outcome measures used in cost-effectiveness and cost–benefit analysis. The authors show how to do this by adjusting years of life lived for consumption-related quality of life—that is, the material standard of living—as well as health-related quality of life. This is a straightforward extension of the quality-adjusted life year metric used in health economics for measuring years of healthy life. The authors’ approach allows for differences between people in the marginal value of money. It also permits distributional impact analysis in terms of lifetime well-being—that is, how many good years of life different people can expect over the course of their lives. The authors aim to show how years of good life could be measured in practice by harnessing readily available data on three important elements of individual well-being: consumption, health-related quality of life, and mortality. They also aim to identify the main ethical assumptions needed to use this measure.