The methods that economists use for valuing different assets often use market prices as the measure of value. But people value many things that do not have a price, while other things have a value to individuals and society that their price does not fully capture. How can economists better measure and estimate the value of such things that lie outside of markets but have value for people’s welfare, both individually and when taken together?
Shadow prices is an ESCoE-funded project, which relates to one of the Bennett Institute’s key research areas, Progress, considering how economic welfare statistics can better match people’s everyday reality and better inform decisions that involve trade-offs for individuals and concerning common concerns such as social infrastructure or the environment.
The project, led by Prof Diane Coyle and Dr Julia Wdowin, working with ESCoE and ONS, focuses on conceptualising and implementing economic valuation methodologies for non-market assets or assets for which there is a gap between their market prices and social value. The research will feed into the development of a systematic and rigorous framework for estimating the value of ‘missing capitals’ assets, such as those belonging to environmental, cultural or social capital stocks, in order to generate economic statistics for ‘Beyond GDP’ welfare assessment.
In measuring Beyond GDP, how should non-market assets and associated capital services be valued? And what are the conceptual and practical issues in estimating accounting prices? These are the questions that research under the Shadow prices project will address.
The project aims to build a framework for enabling the valuation of ‘missing capitals’. To this end, it will delineate a classification of different types of capitals and explore which valuation methods are most fitting for different categories of capital assets.
A second strand of research of the Shadow prices project focuses on exploring new approaches to building forward from exchange value estimations for different types of ‘missing capital’ assets, and conducting empirical applications.
The project maps onto a research agenda of improving economic statistics within and beyond Systems of National Accounts, with a particular view to including capitals that are missing from current economic welfare accounting practice, and thus sits in broader international research programmes exploring Beyond GDP statistics and Inclusive Wealth accounting.
