The elevated status of the elasticity of marginal utility of consumption

The latest UK Treasury guidance on appraisal and evaluation in central government raises the status of the elasticity of marginal utility of consumption (e). While estimates of e are sensitive to a measurement approach, a case is made for placing some emphasis on a method based on consumer demand analysis. Alternative demand models are estimated for the UK and from the best results an e value of 1.6 emerges. For EU countries both this and other methods can be used to measure e. This, for example, permits a cross-country comparison of alternative measures of the social discount rate on a methodologically consistent basis.