Choice of utility functions in integrated assessment: How subjective well-being functions can influence policy analysis

摘要

To help inform public policy benefit-cost analysis, modelers calculate the change in expected utility of a society. This utility calculation often is a function of GDP per capita or economic consumption. Less widely used are subjective well-being utility functions that include relative consumption levels as well as absolute levels of consumption. This paper explores how utility function formulation can change the outcome of a benefit-cost analysis. The choice of functional form is vital to realistically projecting the utility impacts of a public policy and making the correct policy decision. Using climate change policy as an example, the study shows that a simplified subjective well-being utility function would encourage policy makers to enact mitigation policy to prevent a large decrease in society's long-term utility, while a typical GDP/capita utility calculation would encourage policymakers not to enact mitigation policy. This example highlights the practical significance of choosing an appropriate utility measure. The study concludes that the choice of utility function could change the results of cost-benefit analyses and integrated assessment models.