Measuring Cost-Effectivenessis still the distributional issue of how we should allow for
differences in happiness between different generations (or
indeed different years of one person’s life). There is no neat
solution to this problem, and where it is severe it must be
shown explicitly in the analysis. Where it is not, the pure
time discount rate may suffice.^15
If this is the approach to discounting happiness, how
should we discount future public expenditure? In principle
there should be a separate price attached to public expen-
diture in each period. But in practice, if the path of public
expenditure is reasonably smooth, we can probably assume
that the price of public expenditure in units of contempo-
raneous happiness would remain the same from one year to
the next. This would mean that the price of future public
expenditure in units of today’s happiness- years should fall
at the same discount rate as is used for future happiness.
The Length of Life and Number of Births
Finally, how should we value changes in the length of life?
Most people would agree that a longer life is better, but so
is a happier one. So how could we combine these two desir-
able things into a single objective measure of what we are
aiming at for an individual? The most common approach is
to multiply the person’s length of life by the person’s aver-
age happiness— so that the result equals the total happiness
the person experiences— or in medical parlance the num-
ber of Quality- Adjusted Life Years (QALYs).
However for this to make sense we need to assume that
there is such a thing as zero happiness— in other words hap-
piness is measured on a ratio scale rather than a cardinal scale.