Before diving deeper into each of the five wellbeing lenses, let's briefly consider how these five lenses can be applied. In particular, how can the values of different policy options be compiled and compared when using these five lenses? Currently, many governments use quantitative techniques such as Cost-Benefit Analysis (CBA) to weigh up the costs and benefits of different policy options [1]. The rationale is that by assigning quantitative (often: monetary) values to both the costs and the benefits of a proposed policy, an overall picture of the policy’s added value can be obtained, which can then be directly compared with the costs and the added value of alternative policy options [2].

"Analysts might want to question whether CBA is the most suitable tool in the toolkit when the goal is transformative change."

— New Zealand Ministry of Business, Innovation and Employment [3]

Questions have been raised about whether this quantitative approach is suitable to assess policy impacts when the goal is transformative change [4] [5] [6] [7]. Drawbacks of CBA in relation to the five lenses for wellbeing economy policy impact assessment include:

Limitations in developing a holistic understanding of wellbeing impacts

CBA tends to underplay environmental and social impacts that can be hard to quantify, yet are the goal of wellbeing economy policies. This is also referred to as 'quantitative fallacy' - the risk of according 'what can be counted' more weight than 'what may count' [8].

A lack of attention for root causes

Quantification risks prioritising questions of efficiency and optimisation (e.g., highest value for money) over questions of effectiveness and creating genuine improvement. A narrow focus on single proposals also doesn't adequately take into account cumulative or complementary impacts across multiple initiatives, which play a fundamental role in addressing the root causes of societal issues.

Masking over wellbeing inequalities, locally and globally

CBA tends to focus on aggregate wellbeing gains, often within a governments' own borders, without paying sufficient attention to distributional effects, such as how costs and benefits are distributed across different groups in society or what potential positive or negative impacts may be in places elsewhere [9].

Discounting future wellbeing

CBA tends to favour policies that have short-term impacts by applying a discount rate to future impacts. CBA also has a tendency to overestimate the costs and to underestimate the benefits of change, leading to 'status quo bias' [10].

These challenges point to a need to broaden the policy assessment toolkit. Whereas CBA can be useful to inform questions of static efficiency (i.e., the efficient allocation of resources under static circumstances), transformative change is more concerned with dynamic effectiveness (i.e., effectively achieving interdependent goals over time) [11].

Whereas CBA tends to be concerned with static efficiency (i.e., the efficient allocation of resources at a point in time), transformative change is more concerned with dynamic effectiveness (i.e., effectively achieving interdependent goals over time).

When assessing policy impacts, it is important to consider the full suite of analytical tools that are available to inform more systemic, inclusive and forward-looking policy options. The examples provided in the case study descriptions in the upcoming sections therefore include a range of different tools and approaches, such as multi-criteria analysis, systems thinking, scenario analysis and future design. Curious? Let's dive in!

References:

[1] Abelson, P. (2022). Cost-benefit analysis: Then and now. Canberra: Australian National Library.

[2] A wide range of statistical methods, such as subjective wellbeing valuation, travel cost analysis, hedonic pricing, contingent valuation and choice experiments, have been developed to be able to express wellbeing outcomes in a quantitative way.

[3] New Zealand Ministry of Business, Innovation and Employment. How well suited is cost-benefit analysis to transformative change?, https://www.mbie.govt.nz/business-and-employment/economic-development/sustainable-and-resilient-economy-transformation/which-analytical-tools-are-suited-to-transformative-change.

[4] Ackerman, F. & Heinzerling, L. (2004). Priceless: On knowing the price of everything and the value of nothing. The New Press.

[5] UCL Institute for Innovation and Public Purpose (2000). Alternative policy evaluation frameworks and tools: Exploratory study. London: UCL Institute for Innovation and Public Purpose.

[6] Mercure, J-F., Ives, M., Nijsse, F. & Barbrook-Johnson, P. (2021). Deciding how to ‘change big things quickly’: Pros and cons of different appraisal techniques to inform decision-making on low-carbon transformational policies. Exeter: Economics of Energy Innovation and System Transition, University of Exeter Global Systems Institute.

[7] Pells, S. (2023). Which analytical tools are suited to transformative change? CEU Working Paper 23/01. Wellington: Ministry of Business, Innovation and Employment.

[8] Grubb, M., Drummond, P., Mercure, J-F. et al. (2021). The New Economics of Innovation and Transition: Evaluating Opportunities and Risks. Exeter: The Economics of Energy Innovation and System Transition.

[9] Rose-Ackerman, S. (2001). Putting cost-benefit analysis in its place: Rethinking regulatory review. University of Miami Law Review, 65 (2): 335-354.

[10] Frank, R.H. (2000). Why is Cost‐Benefit Analysis so Controversial? The Journal of Legal Studies, 29 (S2): 913-930, The University of Chicago Press

[11] Sharpe, S., Mercure, J-F., Vinuales, J., et al. (2020). Deciding how to decide: Risk-opportunity analysis as a generalisation of cost-benefit analysis. Exeter: Global Systems Institute.

9.4 Broadening the policy assessment toolkit