COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1705

Measurement of Income with Time Use with Applications
to Hedonic Indicators of Happiness and Misery

William D. Nordhaus

June 2009

The present paper examines several issues involved in expanding national economic accounts and quantitative social indicators to include the "consumption" of time. The first part examines this question in the context of the standard national economic accounts. It derives equilibrium conditions for consumer behavior with market and non-market consumption along with intrinsic values of time in different activities.

Using a standard index-number approach, it shows that the growth of real income can be approximated by a weighted average of productivity growth rates in market and non-market productivity and that the valuation of hours drops out of the formula. The second part of the paper examines the role of quantitative social indicators using the approach of hedonic psychology to value time in different activities. It concludes that hedonic measures do not meet the standards for a interpersonally cardinal variable that are required to construct a meaningful quantitative social indicator.

Keywords: Time use, Hedonic measures, National accounts, Index numbers

JEL Classification: J22, D1, D13, E01