New Economics Papers
on Economics of Happiness
Issue of 2007‒05‒12
nine papers chosen by

  1. The Power of the Family By Alberto Alesina; Paola Giuliano
  2. Do Social Relations Affect Economic Welfare? A Microeconomic Empirical Analysis By Giacomo Degli Antoni
  3. Would You Be Happier If You Were Richer? A Focusing Illusion By Daniel Kahneman; Alan B. Krueger; David Schkade; Norbert Schwarz; Arthur A. Stone
  4. The Reliability of Subjective Well-Being Measures By Alan B. Krueger; David A. Schkade
  5. Want Economic Growth with Good Quality Institutions? Spend on Education By Mamoon, Dawood; Murshed, Mansoob
  6. Risk, Growth and Poverty: what do we know, what do we need to know? By Stefan Dercon (QEH)
  7. Quantifying the psychological costs of unemployment: the role of permanent income By Andreas Knabe; Steffen Rätzel
  8. Can a rise in income inequality improve welfare? By Pérez Truglia, Ricardo Nicolás
  9. Health and the Evolution of Welfare across Brazilian Municipalities By Rodrigo R. Soares

  1. By: Alberto Alesina (Harvard University, NBER and CEPR); Paola Giuliano (Harvard University, IMF and IZA)
    Abstract: The structure of family relationships influences economic behavior and attitudes. We define our measure of family ties using individual responses from the World Value Survey regarding the role of the family and the love and respect that children need to have for their parents for over 70 countries. We show that strong family ties imply more reliance on the family as an economic unit which provides goods and services and less on the market and on the government for social insurance. With strong family ties home production is higher, labor force participation of women and youngsters, and geographical mobility, lower. Families are larger (higher fertility and higher family size) with strong family ties, which is consistent with the idea of the family as an important economic unit. We present evidence on cross country regressions. To assess causality we look at the behavior of second generation immigrants in the US and we employ a variable based on the grammatical rule of pronoun drop as an instrument for family ties. Our results overall indicate a significant influence of the strength of family ties on economic outcomes.
    Keywords: family ties, culture, home production and market activities, immigrants
    JEL: Z10 Z13
    Date: 2007–04
  2. By: Giacomo Degli Antoni (University of Milano-Bicocca)
    Abstract: Over the last few years, many studies have shown that social networks affect the socioeconomic development. This paper presents evidence, through the Italian microdata representative of the entire Italian population, that the quality and quantity of interpersonal relations of agents can increase their economic welfare. Two proxies of interpersonal relations at an individual level are considered: a proxy for the density and one for the quality of network structure of personal contacts. Both seem to have a positive effect on the level of household economic welfare of agents. This result proves robust to the inclusion of a variety of control variables and to the use of different econometric methods.
    Keywords: Networks, Social Interactions, Household Economic Welfare, Microdata, Fuzzy Logic
    JEL: D10 Z13
    Date: 2007–03
  3. By: Daniel Kahneman (Princeton University); Alan B. Krueger (Princeton University and NBER); David Schkade (University of California, San Diego); Norbert Schwarz (University of Michigan); Arthur A. Stone (Stony Brook University)
    Abstract: Most people believe that they would be happier if they were richer, but survey evidence on subjective well-being is largely inconsistent with that belief. Subjective well-being is most commonly measured by questions that ask people, “All things considered, how satisfied are you with your life as a whole these days?” or “Taken all together, would you say that you are very happy, pretty happy, or not too happy?” Such questions elicit a global evaluation of one’s life. An alternative method asks people to report their feelings in real time, which yields a measure of experienced happiness. Surveys in many countries conducted over decades indicate that, on average, reported global judgments of life satisfaction or happiness have not changed much over the last four decades, in spite of large increases in real income per capita. While reported life satisfaction and household income are positively correlated in a cross-section of people at a given time, increases in income have been found to have mainly a transitory effect on individuals’ reported life satisfaction. (1-3) Moreover, the correlation between income and subjective well-being is weaker when a measure of experienced happiness is used instead of a global measure. This article reviews recent evidence that helps interpret these observations.
    Date: 2006–05
  4. By: Alan B. Krueger (Princeton University); David A. Schkade (University of California, San Diego)
    Abstract: Economists are increasingly analyzing data on subjective well-being. Since 2000, 157 papers and numerous books have been published in the economics literature using data on life satisfaction or subjective well-being, according to a search of Econ Lit.1 Here we analyze the test-retest reliability of two measures of subjective well-being: a standard life satisfaction question and affective experience measures derived from the Day Reconstruction Method (DRM). Although economists have longstanding reservations about the feasibility of interpersonal comparisons of utility that we can only partially address here, another question concerns the reliability of such measurements for the same set of individuals over time. Overall life satisfaction should not change very much from week to week. Likewise, individuals who have similar routines from week to week should experience similar feelings over time. How persistent are individuals’ responses to subjective well-being questions? To anticipate our main findings, both measures of subjective well-being (life satisfaction and affective experience) display a serial correlation of about 0.60 when assessed two weeks apart, which is lower than the reliability ratios typically found for education, income and many other common micro economic variables (Bound, Brown, and Mathiowetz, 2001 and Angrist and Krueger, 1999), but high enough to support much of the research that has been undertaken on subjective well-being.
    Date: 2007–01
  5. By: Mamoon, Dawood; Murshed, Mansoob
    Abstract: The purpose of this paper is to compare the role of human capital accumulation measured by number of years of schooling with the relative contribution of institutional capacity to prosperity. We employ several concepts of institutional quality prevalent in the literature. We discover that developing human capital is as important as superior institutional functioning for economic wellbeing. Indeed, the accumulation of human capital stocks via increased education might lead to improved institutional functioning, and the utilisation of policies like trade liberalisation.
    Keywords: Growth; Institutions; Human Capital.
    JEL: I28 P36 I21
    Date: 2007–05
  6. By: Stefan Dercon (QEH)
    Abstract: This note has three objectives: first, it aims to take stock of the nature of the evidence available and on the links between uninsured risk and shocks on the one hand, and growth and poverty on the other, both at a macro and micro level. Secondly, it makes a number of suggestions of the type of work that could be fruitfully implemented. Finally, it tries to strike a balance between the needs for the policy maker and the requirements for academic scrutiny of evidence, in offering suggestions for priorities in work.
  7. By: Andreas Knabe (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Steffen Rätzel (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
    Abstract: Unemployment causes significant losses in the quality of life. In addition to reducing individual income, it also creates non-pecuniary, psychological costs. We quantify these non-pecuniary losses by using the life satisfaction approach. In contrast to previous studies, we apply Friedman’s (1957) permanent income hypothesis by distinguishing between temporary and permanent effects of income changes. This allows us to account for intertemporal spillovers of income compensations. Our results show that, without this distinction, the non-pecuniary costs of unemployment are overestimated by roughly one-third. Nevertheless, the non-pecuniary costs of unemployment with this modified quantification method still amount to 2.3 (1.5) times the pure pecuniary costs of unemployment for men (women).This confirms the high value of work for life satisfaction.
    Keywords: unemployment, happiness, life satisfaction, permanent income
    JEL: J28 J60 D91
    Date: 2007–05
  8. By: Pérez Truglia, Ricardo Nicolás
    Abstract: Since status goods are thought not to derive intrinsic utility, the common vision among economists insists that relative concerns make everyone unhappy. In this paper I try to show (with a signaling-type model) that conspicuous consumption is a natural and efficient response of people to the absence of certain markets. Then I test my conjecture based on panel data for 10,000 respondents in Russia for 2000-2002, exploiting two identification strategies. The following results emerge: i. Income inequality does increase the marginal utility derived from consumption; ii. There is a separate indirect effect of consumption on happiness; iii. The presence of status goods can explain a utility function initially concave downward and then concave upward, and hence it would be efficient to spread the income of the middle-class; iv. The results remain unchanged after controlling for a wide range of recent theories, such as comparison happiness and income equivalence scale elasticity.
    Keywords: Income; happiness; conspicuous consumption; inequality.
    JEL: C33 D61 D31
    Date: 2007–01–29
  9. By: Rodrigo R. Soares
    Abstract: This paper describes the pattern of reductions in mortality across Brazilian municipalities between 1970 and 2000, and analyzes its causes and consequences. It shows that, as in the international context, the relationship between income and life expectancy has shifted consistently in the recent past. But reductions in mortality within Brazil have been more homogeneously distributed than across countries. We use a compensating differentials approach to estimate the value of the observed reductions in mortality. The results suggest that gains in life expectancy had a welfare value equivalent to 39% of the growth in income per capita, being therefore responsible for 28% of the overall improvement in welfare. We then use a dynamic panel to conduct a preliminary assessment of the potential determinants of these gains. We show that improvements in education, access to water, and sanitation seem to be important determinants of the dimension of changes in life expectancy not correlated with income.
    JEL: I12 I31 I38 J17 O15 O54
    Date: 2007–05

General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.