Monetizing Longevity Gains under Welfare Interdependencies: An Exploratory Study

Whereas existing indicators of standards of living neglect the dependence of individual well-being on other people’s welfare, this paper aims at constructing an income-based indicator taking welfare interdependencies into account. For that purpose, an extension of Usher’s longevity-adjusted income measure is developed, where the selfish representative agent is replaced by a two-generation representative household, whose members are connected by altruistic links. Longevity-adjusted income figures are shown, for the U.S. (1901–1999), to be significantly sensitive to the postulated altruism, so that conventional measures, by neglecting joint survival achievements, may underestimate actual improvements in living conditions. Methodological issues raised by the inclusion of interdependencies are also discussed, such as the increased difficulty, for indicators, to reflect the complexity and diversity of preferences. Copyright Springer Science+Business Media, LLC 2007