On the Use of Shadow Prices for Sustainable Well-Being Measurement

AbstractThis paper tries to answer the following research question: can multidimensional concepts like well-being or sustainability be measured by using a single metric such as shadow prices? The defence of shadow prices is generally based on the pragmatic argument that different dimensions (economic, social, environmental,…) cannot be aggregated when measured by means of different metrics, thus a common measurement rod has to be found, that is shadow prices have to be used. Here the following conclusions are drawn: (1) The choice of shadow prices is not neutral, in fact implicit assumptions such as that substitutability is always desirable need to be accepted. This means that the use of shadow prices is not consistent with a simple measurement objective but with a precise weltanschauung. (2) Shadow prices are primarily meant to implement efficiency, i.e. prices reflect conditions at the margin, and thus this is their natural objective. In the framework of sustainable well-being measurement, this may give rise to counterintuitive results, such as that the loss of an important well-being component is not perceived since its physical scarcity is compensated by its increase in monetary value. (3) The pragmatic measurement argument is not well grounded, since multidimensional measurement frameworks exist, such as multi-criteria evaluation. Since incommensurability between different metrics does not imply incomparability, there is no obvious reason for not using multidimensional techniques to measure multidimensional concepts.