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An additional layer of complexity is introduced in the case of nonmarketed assets that yield a flow of nonmarketed services over time. Investments in health fall into this category, in that improved health increases not only expected years of labor market activity, and thus labor market earnings, but also the expected number of years available in which to enjoy all that makes life rewarding. Developing a market-based measure of the value of additional years of life that may flow from health care investments is more difficult than, for example, developing a market-based measure of the value of the earnings increment attributable to additional education. Labor market data have proven useful for this purpose. Specifically, the fact that different occupations are associated both with different risks of fatal injury and different relative wage rates has been exploited to derive estimates of the value of an additional year of life. Such measures are controversial. But, in comparison with conceivable alternatives, they have the advantage of being based on real-world decisions that yield observable market outcomes, and for that reason they have appeal.
Different approaches may be necessary for the case of nonmarket outputs that are public in nature, such as crime rates and air quality. Again, however, it may be possible to develop measures of the value of these outputs on the basis of market transactions. The levels of many, if not all, of these nonmarket outputs are likely to differ across localities. People presumably will be willing to pay more to live in communities with low crime rates and good air quality than in communities that lack these attributes. The value of such positive attributes are expected to be reflected in house prices. At least in principle, one could derive an estimate of the value of lower crime rates, better schools, or higher air quality from a hedonic model that relates house prices to these (and other) community characteristics.18
There are a number of areas for which market valuation, or even imputations based on nonmarket analogues, are simply unavailable and impossible to obtain. Examples of these might include some aspects of social capital, such as family stability; the affect of terrorism on the population’s sense of well-being; or the “existence” and “legacy” values of national monuments, such as the Grand Canyon. In these cases, valuation must rely on weaker arguments. The panel urges that attention be directed first to those areas where the most defensible, market-based approaches to valuation are possible.
Though this property-value approach has been widely used in the literature, the panel is not (at least at this time) advocating it for nonmarket accounting; there are widely acknowledged identification problems with such models. The severity of these problems depends on the data sets available.