Willingness-to-pay and the equivalence approach

This paper describes the evaluation of individual situations in terms of equivalent incomes (or money-metric utilities) computed from ordinary income by adding or subtracting various terms of willingness-to-pay. It discusses the origin of the approach and its connection with social choice theory, fair allocation theory, and philosophical principles. It shows how this has been generalized into a broader "equivalence approach", and argues that the criticisms that have been raised against this methodology are not compelling. It also examines the challenges to be addressed for empirical applications of the approach.