New Economics Papers
on Economics of Happiness
Issue of 2007‒07‒07
seven papers chosen by

  1. Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles By Andrew E. Clark; Paul Frijters; Michael Shields
  2. The Effect of Marital Breakup on the Income Distribution of Women with Children By Elizabeth O. Ananat; Guy Michaels
  3. Subjective Well-being and its Determinants in Rural China By John Knight; Lina Song; Ramani Gunatilaka
  4. SULLA FELICITÀ IN ECONOMIA. LA TEORIA DEI BENI RELAZIONALI DI MENGER E BÖHM-BAWERK (On Happiness in Economics. Menger’s and Böhm-Bawerk’s Theory of Relational Goods) By Antonio Magliulo
  5. Should Market Liberalization Precede Democracy? Causal Relations between Political Preferences and Development By Pauline Grosjean; Claudia Senik
  6. The Economics, Technology and Neuroscience of Human Capability Formation By James J. Heckman
  7. Older Couples' Labour Market Reactions to Family Disruptions By David Haardt

  1. By: Andrew E. Clark (Paris School of Economics and IZA); Paul Frijters (Queensland University of Technology); Michael Shields (University of Melbourne and IZA)
    Abstract: The well-known Easterlin paradox points out that average happiness has remained constant over time despite sharp rises in GNP per head. At the same time, a micro literature has typically found positive correlations between individual income and individual measures of subjective well-being. This paper suggests that these two findings are consistent with the presence of relative income terms in the utility function. Income may be evaluated relative to others (social comparison) or to oneself in the past (habituation). We review the evidence on relative income from the subjective well-being literature. We also discuss the relation (or not) between happiness and utility and discuss some non-happiness research (behavioural, experimental, neurological) dealing with income comparisons. We last consider how relative income in the utility function affects economic models of behaviour in a number of different domains.
    Keywords: income, happiness, utility, comparison, habituation
    JEL: D01 D31 H00 I31 J28
    Date: 2007–06
  2. By: Elizabeth O. Ananat; Guy Michaels
    Abstract: Having a female firstborn child significantly increases the probability that a woman's first marriage breaks up. Recent work has exploited this exogenous variation to measure the effect of marital breakup on economic outcomes, and has concluded that divorce has little effect on women's average household income. Employing an Abadie (2003) technique that allows us to look at the impact of marital breakup throughout the income distribution, however, we find that divorce greatly increases the probability that a woman lives in a household with income in the bottom quartile. While women partially offset the loss of spousal earnings with child support, welfare, combining households, and substantially increasing their labor supply, divorce significantly increases the odds that a woman with children is poor.
    Keywords: marital breakup, earnings of women, poverty, children
    JEL: J12 J16
    Date: 2007–04
  3. By: John Knight; Lina Song; Ramani Gunatilaka
    Abstract: A national household survey for 2002, containing a specially designed module on subjective well-being, is used to estimate pioneering happiness functions in rural China. The variables predicted by economic theory to be important for happiness are relatively unimportant. The analysis suggests that we need to draw on psychology and sociology if we are to understand. Rural China is not a hotbed of dissatisfaction with life, possibly because most people are found to confine their reference groups to the village. Relative income within the village and relative income over time, both in the past and expected in the future, are shown to influence happiness. `Subjective well-being poverty` functions are estimated, in which income and various proxies for `capabilities` and `functionings` appear as arguments. Even amidst the poverty of rural China, social functionings, attitudes and expectations are important to subjective well-being.
    Keywords: Happiness, Subjective Well-being, Aspirations, Relative Deprivation, Reference Groups, Poverty, China
    JEL: I31
    Date: 2007
  4. By: Antonio Magliulo (Università degli Studi di Firenze, Dipartimento di Scienze Economiche)
    Abstract: The “paradox of happiness in economics” has aroused a growing interest among scholars all over the world. In opulent societies, many people, despite an increase in income, declare themselves less happy. One explanation is that economic growth can destroy some “relational goods” (personal relationships, friendship, family, love) affecting happiness. Such an explanation is based on an historical interpretation: marginalism would have darkened the theme of happiness in economics. This work shows, however, that two great marginalists, Menger and Böhm-Bawerk, formulated a theory of “relational goods” that complicates, in Hirschman’s sense, the whole history of happiness in economics.
    Keywords: Scuola austriaca, Economia e felicità
    JEL: B13 D60
    Date: 2007
  5. By: Pauline Grosjean (European Bank for Reconstruction and Development); Claudia Senik (Paris School of Economics, University Paris-IV Sorbonne, IUF and IZA)
    Abstract: This paper is dedicated to the relation between market development and democracy. We distinguish contexts and preferences and ask whether it is true that the demand for democracy only emerges after a certain degree of market development is reached, and whether, conversely, democratization is likely to be an obstacle to the acceptation of market liberalization. Our study hinges on a new survey rich in attitudinal variables: the Life in Transition Survey (LITS) conducted in 2006 by the European Bank for Reconstruction and Development and the World Bank, in 28 post-Transition countries. Our identification strategy consists in relying on the specific situation of frontier-zones. We find that democracy enhances the support for market development whereas the reverse is not true. Hence, the relativist argument according to which the preference for democracy is an endogenous byproduct of market development is not supported by our data.
    Keywords: market and democracy, sequencing of development, transition economies, attitudinal variables, cross-country survey
    JEL: H1 H5 P2 P3 P5 O1 O12 O57
    Date: 2007–06
  6. By: James J. Heckman (University of Chicago, American Bar Foundation, University College Dublin and IZA)
    Abstract: This paper begins the synthesis of two currently unrelated literatures: the human capital approach to health economics and the economics of cognitive and noncognitive skill formation. A lifecycle investment framework is the foundation for understanding the origins of human inequality and for devising policies to reduce it.
    Keywords: critical periods, sensitive periods, early childhood, Barker hypothesis
    JEL: I12 I21
    Date: 2007–06
  7. By: David Haardt
    Abstract: This paper analyses how spouses in older couples react to `shocks' or `surprises' in their partner's labour income using data from the British Household Panel Survey, 1991-2004. Wives' labour supply proves to be much more sensitive to shocks than husbands'. After a divorce or separation, wives reduce their labour supply while the effect on husbands' labour supply is positive or not statistically significant. If a wife becomes unemployed, it does not affect her husband's labour supply while wives whose husband becomes unemployed reduce their labour supply, too. A decline in husband's health causes the wife to reduce her working hours while husbands tend to increase their labour supply when facing a decline in wife's health. Partner's death does not have statistically significant labour supply effects. Negative income shocks due to other reasons (such as choice) tend to reduce partner's labour supply and vice versa, but only slightly.
    Keywords: labour supply, income shocks, older couples, BHPS
    JEL: J12 J14 J16 J26
    Date: 2007–05

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