The Welfare Implications of Public Goods: Lessons from 10 years of Atkinson in the UK (ESCoE DP 2019-11)

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The Welfare Implications of Public Goods: Lessons from 10 years of Atkinson in the UK (ESCoE DP 2019-11)

By Fred Foxton, James Lewis

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When considering issues of measuring welfare beyond GDP, a key ongoing but unfinished agenda is to how to measure the outputs of goods and services which are free at the point of delivery, for the purposes of national accounts. Public services such as schools and health services are the major example of this kind. Over a decade ago, Sir Tony Atkinson provided a principled framework for this end. Consistent with the basic principles of national accounting, he advocated an approach by which this output should be measured as the value added by the services concerned. This value, in turn, equated to the improvement in outcomes directly attributable to the activities of the public services concerned. Implementing this approach, as he recognised, is by no means straightforward, but the UK experience recounted above shows that strong progress can be made. Working with experts and practitioners, quantity and quality measures can be identified and used to give a good approximation to the value added by the key public services, and thus their contribution to GDP. New data and intelligent use of existing data means this can be done at low cost and in a way which maximises stakeholder understanding and acceptance. But national statistical institutes are also now grappling with a second task; measuring changes in welfare or wellbeing more generally, regardless of how they are generated. Health outcomes – life expectancy, for example, or healthy life expectancy – are influenced by a variety of factors besides publicly funded health services: diet, smoking prevalence and other lifestyle choices are obvious determinants. So, the central tasks under this agenda become firstly the identification of appropriate measures of outcome changes, secondly determining how much value our societies place on those changes, and thirdly to understand the relationship between the impact of the public service and other factors on the headline outcome measures.