nep-hap New Economics Papers
on Economics of Happiness
Issue of 2008‒01‒05
twelve papers chosen by
Viviana Di Giovinazzo
University of Milano-Bicocca

  1. (Un)Happiness in Transition By Sergei Guriev; Ekaterina Zhuravskaya
  2. Keeping up with the Schmidts : An Empirical Test of Relative Deprivation Theory in the Neighbourhood Context By Gundi Knies; Simon Burgess; Carol Propper
  3. The Happiness Gains from Sorting and Matching in the Labor Market By Simon Luechinger; Alois Stutzer; Rainer Winkelmann
  4. Individual Well-Being in a Dynamic Perspective By Conchita D'Ambrosio; Joachim R. Frick
  5. The Marginal Utility of Income By Richard Layard; Guy Mayraz; Stephen J. Nickell
  6. The Set-point Theory of Well-being Needs Replacing : On the Brink of a Scientific Revolution? By Bruce Headey
  7. Active decisions and pro-social behavior By Alois Stutzer; Lorenz Goette; Michael Zehnder
  8. Are Youths on Income Support Less Happy? Evidence from Australia By Wang-Sheng Lee; Umut Oguzoglu
  9. Well-Being and Ill-Being: A Bivariate Panel Data Analysis By Wang-Sheng Lee; Umut Oguzoglu
  10. Working Time Mismatch and Subjective Well-Being By Mark Wooden; Diana Warren; Robert Drago
  11. Measurement and Analysis of Child Well-Being in Middle and High Income Countries By Almas Heshmati; Chemen S.J. Bajalan; Arno Tausch
  12. Environment, Human Development and Economic Growth after Liberalisation: An Analysis of Indian States By Mukherjee, Sacchidananda; Chakraborty, Debashis

  1. By: Sergei Guriev (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR)); Ekaterina Zhuravskaya (New Economic School (NES), Center for Economic and Financial Research (CEFIR), Center for Economic Policy Research (CEPR))
    Abstract: Despite the strong growth performance in transition countries in the last decade, residents of transition countries report abnormally low levels of life satisfaction. Using data from multiple sources including a recent survey in 28 post-communist countries, we study various explanations of this phenomenon. We find that deterioration in public goods provision, an increase in macroeconomic volatility, and a mismatch of human capital explain a great deal of the difference in life satisfaction between transition countries and other countries with similar income. The rest of the gap is explained by the difference in the quality of the samples. As in other countries, life satisfaction in transition is strongly related to income; but due to a higher non-response of highincome individuals in transition countries, the effect of GDP growth on the increase in life satisfaction estimated using survey data is biased downwards. The evidence suggests that if the region keeps growing at current rates, the life satisfaction in transition countries will catch up with the “normal” level in the near future.
    Date: 2007–12
    URL: http://d.repec.org/n?u=RePEc:cfr:cefirw:w0111&r=hap
  2. By: Gundi Knies; Simon Burgess; Carol Propper
    Abstract: We test empirically whether people’s life satisfaction depends on their relative income position in the neighbourhood, drawing on a unique dataset, the German Socio-economic Panel Study (SOEP) matched with micro-marketing indicators of population characteristics. Relative deprivation theory suggests that individuals are happier the better their relative income position in the neighbourhood is. To test this theory we estimate micro-economic happiness models for the years 1994 and 1999 with controls for own income and for neighbourhood income at the zip-code level (roughly 9,000 people). There exist no negative and no statistically significant associations between neighbourhood income and life satisfaction, which refutes relative deprivation theory. If anything, we find positive associations between neighbourhood income and happiness in all cross-sectional models and this is robust to a number of robustness tests, including adding in more controls for neighbourhood quality, changing the outcome variable, and interacting neighbourhood income with indicators that proxy the extent to which individuals may be assumed to interact with their neighbours. We argue that the scale at which we measure neighbourhood characteristics may be too large still to identify the comparison effect sought after.
    Keywords: Life satisfaction, neighbourhood effects, comparison income, reference group
    JEL: I31 C23 Z1
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp24&r=hap
  3. By: Simon Luechinger; Alois Stutzer; Rainer Winkelmann
    Abstract: Sorting of people on the labor market not only assures the most productive use of valuable skills but also generates individual utility gains if people experience an optimal match between job characteristics and their preferences. Based on individual data on subjective well-being it is possible to assess these latter gains from matching. We introduce a two-equation ordered probit model with endogenous switching and study self-selection into government and private sector jobs. In an analysis with data from the European Social Survey, we find considerable gains from matching amounting to an increase in the fraction of very satisfied workers from 53.8 to 58.8 percent relative to a hypothetical random allocation of workers to the two sectors. A companion analysis of data from the German Socio-Economic Panel shows that selection on unobservables is reduced once we include additional controls for preference heterogeneity.
    Keywords: Household Taxation, Income Distribution, Work Incentives, Microsimulation
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp45&r=hap
  4. By: Conchita D'Ambrosio; Joachim R. Frick
    Abstract: This paper explores the determinants of individual well-being as measured by self-reported levels of satisfaction with income. Making full use of the panel data nature of the German Socio-Economic Panel, we provide empirical evidence for well-being depending on absolute and on relative levels of income in a dynamic framework. This finding holds after controlling for other influential factors in a multivariate setting. The main novelty of the paper is the consideration of dynamic aspects: individual's own history as well as the relative income performance with respect to the others living in the society under analysis do play a major role in the assessment of well-being.
    Keywords: Interdependent Preferences, Inequality Aversion, Status, Subjective Well-Being, SOEP
    JEL: D63 I31 D31
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp5&r=hap
  5. By: Richard Layard; Guy Mayraz; Stephen J. Nickell
    Abstract: In normative public economics it is crucial to know how fast the marginal utility of income declines as income increases. One needs this parameter for cost-benefit analysis, for optimal taxation and for the (Atkinson) measurement of inequality. We estimate this parameter using four cross-sectional surveys of subjective well-being and two panel surveys. Altogether, we use data from over 50 countries, and in a period extending from 1972 to 2005. In all six surveys we find a consistent relationship between reported well-being and income. We estimate the elasticity of marginal utility with respect to income at around (minus) 1.26. In the second part of the paper we ask whether true utility may not have a convex relationship to reported happiness, making it less concave with respect to income. We find some evidence of this, so that the elasticity of marginal utility with respect to income may be somewhat lower at roughly (minus) 1.2.
    Keywords: Marginal utility, income, life satisfaction, happiness, public economic, welfare, inequality, optimal taxation, reference-dependent preferences
    JEL: I31 H00 D1 D61 H21
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp50&r=hap
  6. By: Bruce Headey
    Abstract: Set-point theory has dominated the field of subjective well-being (SWB). It has served as a classic Kuhn research paradigm, being extended and refined for thirty years to take in new results. The central plank of the theory is that adult set-points do not change, except just temporarily in the face of major life events. There was always some ‘discordant data’, including evidence that some events are so tragic (e.g. the death of one’s child) that people never recover back to their set-point. It was possible to dismiss these events as ‘exceptions’ and maintain the theory. However, several new findings are now emerging, which it is increasingly difficult to dismiss as ‘exceptions’ and which appear to require substantial revisions or replacement of set-point theory. Many of these findings are based on data from the German Socio-Economic Panel Survey (SOEP, 1984 - ) which provides clear evidence of large, long term changes in the set-points of substantial minorities of the population. This paper reviews recent findings and highlights lines of theory development which, at minimum, represent substantial revisions to set-point theory and which may perhaps lead to replacement of the paradigm. There is evidence to suggest that individuals with certain personality traits are more likely to record long term change in SWB than others. Also, SWB appears to depend partly on choice/prioritisation of some life goals rather than others. Pursuit of non-zero sum goals (family and altruistic goals) leads to higher SWB than pursuit of zero sum goals (career advancement and material gains). Both these new lines of theory appear promising and the second, in particular, cannot sensibly be reconciled with set-point theory.
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:diw:diwsop:diw_sp55&r=hap
  7. By: Alois Stutzer; Lorenz Goette; Michael Zehnder
    Abstract: In this paper, we propose a decision framework where people are individually asked to either actively consent to or dissent from some pro-social behavior. We hypothesize that confronting individuals with the choice of whether to engage in a specific pro-social behavior contributes to the formation of issue-specific altruistic preferences, while simultaneously involving a commitment. The hypothesis is tested in a large-scale field experiment on blood donations. We find that this “active-decision” intervention substantially increases the actual donation behavior of people who had not fully formed preferences beforehand.
    Keywords: Human behavior ; Altruism
    Date: 2007
    URL: http://d.repec.org/n?u=RePEc:fip:fedbwp:07-13&r=hap
  8. By: Wang-Sheng Lee (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Umut Oguzoglu (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: The central research question addressed in this paper is how receipt of income support payments affects the well-being of youths. Using 1997-2004 panel data from a nationally representative survey of Australian youths, we attempt to estimate the size of the welfare stigma faced by Australian youths, where stigma is defined as the effect of welfare receipt on reported happiness levels. In analysing the determinants of happiness, we argue that it is important to control for dynamics and initial conditions. The latter arguably measures an initial setpoint of happiness which the psychological literature has found strong support for. In contrast to the general findings of the existence of a welfare stigma for adults, based on our results using dynamic panel probit models, our findings suggest that for Australian youths, there is a small negative but not statistically significant stigma associated with welfare receipt.
    Keywords: Well-being, happiness, welfare stigma, youths.
    Date: 2007–02
    URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2007n03&r=hap
  9. By: Wang-Sheng Lee (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Umut Oguzoglu (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
    Abstract: The aim of this paper is to estimate in a multivariate context the factors associated with well-being and ill-being without making the assumptions that they are opposite ends of the same continuum, and that the factors uniformly affect both well-being and ill-being. Using the first five waves of panel data from the Household, Income and Labour Dynamics in Australia (HILDA) survey, we jointly model positive and negative well-being in a two-equation dynamic panel data model. We found that while past ill-being had significant effect on current well-being there was no support for a reverse relationship (i.e. lagged effect of well-being on current ill-being). In addition, we also found support for asymmetry in how certain factors affect well-being and ill-being. The implication of the findings in this paper for the happiness literature is that for future empirical work, it would perhaps more prudent to begin with the notion that well-being and ill-being are distinct dimensions, that the unobservables that affect well-being and ill-being are correlated, and to specify econometric models that allow for these concepts to be reflected.
    Date: 2007–10
    URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2007n28&r=hap
  10. By: Mark Wooden (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Diana Warren (Institute of Applied Economic and Social Research, The University of Melbourne); Robert Drago (Pennsylvania State University, USA)
    Abstract: This study uses nationally representative panel survey data for Australia to identify the role played by mismatches between hours actually worked and working time preferences in contributing to reported levels of job and life satisfaction. Three main conclusions emerge. First, it is not the number of hours worked that matters for subjective well-being, but working time mismatch. Second, overemployment is a more serious problem than is underemployment. Third, while the magnitude of the impact of overemployment may seem small in absolute terms, relative to other variables, such as disability, the effect is quite large.
    Date: 2007–11
    URL: http://d.repec.org/n?u=RePEc:iae:iaewps:wp2007n29&r=hap
  11. By: Almas Heshmati (University of Kurdistan Hawler, HIEPR and IZA); Chemen S.J. Bajalan (Queens University Belfast, University of Kurdistan Hawler and HIEPR); Arno Tausch (Innsbruck University)
    Abstract: Starting from the recent UNICEF publications on child poverty in the developed countries, which received a wide audience in the political and scientific world, in this paper we further analyze the UNICEF study data base and present three composite indices that are multidimensional and quantitatively measures of child well-being. While the original UNICEF studies simply added together the ranks on different measurement scales, we present a much more sophisticated approach, with the first of our indicators being a non-parametric measure while the remaining two are parametric. In the non-parametric index of child welfare, the well-being indicators are given same weights in their aggregation to form different components from which an overall index is being constructed. Two different forms of the parametric index are estimated by using principal component analysis. The first model uses a pool of all indicators without classification of the indicators by type of well-being, while the second model estimates first the sub-components separately and then uses the share of variance explained by each principal component to compute the weighted average of each component and their aggregation into an index of overall child well-being. The indices indicate which countries have the best system of child welfare and show how child well-being varies across countries and regions. The indices are composed of six well-being components: material, health and safety, educational well-being, family and peer relationships, behaviours and risks and subjective well-being. Each of the components is generated from a number of well-being sub-indicators.
    Keywords: child well-being, multidimensional index, principal component, child poverty, child outcomes, OECD
    JEL: D31 I10 I20 I30 J13
    Date: 2007–12
    URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp3203&r=hap
  12. By: Mukherjee, Sacchidananda; Chakraborty, Debashis
    Abstract: Economic growth does not necessarily ensure environmental sustainability for a country. The relationship between the two is far more complicated for developing countries like India, given the dependence of a large section of the population on natural resources for livelihood. Under this backdrop, the current study attempts to analyze the relationships among Environmental Quality (EQ), Human Development (HD) and Economic Growth (EG) for 14 major Indian States during post liberalisation period (1991-2004). Further, for understanding the changes in EQ with the advancement of economic liberalisation, the analysis is carried out by dividing the sample period into two: Period A (1990–1996) and Period B (1997–2004). For both the sub-periods, 63 environmental indicators have been clustered under eight broad environmental groups and an overall index of EQ using the HDI methodology. The EQ ranks of the States exhibit variation over time, implying that environment has both spatial and temporal dimensions. Ranking of the States across different environmental criteria (groups) show that different States possess different strengths and weaknesses in managing various aspects of EQ. The HDI rankings of the States for the two periods are constructed by the HDI technique following the National Human Development Report 2001 methodology. We attempt to test for the Environmental Kuznets Curve hypothesis through multivariate OLS regression models, which indicate presence of non-linear relationship between several individual environmental groups and per capita net state domestic product (PCNSDP). The relationship between EQ and economic growth however does not become clear from the current study. The regression results involving individual environment groups and HDI score indicate a slanting N-shaped relationship. The paper concludes that individual States should adopt environmental management practices based on their local (at the most disaggregated level) environmental information. Moreover, since environmental sustainability and human well-being are complementary to each other, individual States should attempt to translate the economic growth to human well-being.
    Keywords: Environmental Quality; Economic Liberalisation; Economic Growth; Human Development; India.
    JEL: Q50 O10 O15 O13 Q24 Q01 Q25 O1 I2 Q40 O4 I10
    Date: 2007–07
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:6472&r=hap

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