nep-hap New Economics Papers
on Economics of Happiness
Issue of 2016‒06‒18
eight papers chosen by
Viviana Di Giovinazzo
Università degli Studi di Milano-Bicocca

  1. The hedonistic cost of the Black Saturday bushfires By Ambrey, Christopher L.; Fleming, Christopher M.; Manning, Matthew
  2. Econometric Analysis of Ratings: With an Application to Health and Wellbeing By Raphael Studer; Rainer Winkelmann
  3. Implementing the capability approach with respect for individual valuations: an illustration with Colombian data By Koen Decancq; Erik Schokkaert; Blanca Zuluaga
  4. Toward a Diachronic Conception of Well-Being: Thoughts from Georgescu-Roegen By Nicolò Bellanca; Benedetto Rocchi
  5. Aspirations and income, food security and subjective well-being in rural Ethiopia By Daniel Ayalew Mekonnen; Nicolas Gerber
  6. The Consumption-Investment Decision of a Prospect Theory Household By Fortin, Ines; Hlouskova, Jaroslava; Tsigaris, Panagiotis
  7. The 'Common Goood' in Pope Francis's Social Welfare Hypothesis By Amavilah, Voxi Heinrich
  8. Does well-being help you with unemployment? By Kesavayuth, Dusanee; Zikos, Vasileios

  1. By: Ambrey, Christopher L.; Fleming, Christopher M.; Manning, Matthew
    Abstract: This study employs the experienced preference method to quantify the hedonistic cost of the Black Saturday bushfires, which started on and around the 7th of February 2009 in Victoria, Australia. Using data from the Household, Income and Labour Dynamics in Australia (HILDA) survey and data from Geographic Information Systems (GIS) this study explores the spatial and temporal dimensions of the hedonistic costs of the Black Saturday Bushfires, a natural experiment. Specifically, this study reveals the size and nature of the psychological cost borne by those living near fire effected land. In doing so, this study makes a distinct contribution to both the non-market valuation literature and the economics of happiness literature. It is envisaged that the findings of this study will help inform decision makers, public debate and public policy on the magnitude and characteristics of the psychological costs associated with Black Saturday bushfires. Furthermore, these findings are more generally pertinent to understanding how the increased risks of bushfires caused by anthropogenic climate change may adversely affect human welfare.
    Keywords: Bushfires, Experienced Preference Method (EPM), Happiness, Household, Income and Labour Dynamics in Australia (HILDA) survey, Life satisfaction, Risk and Uncertainty, I31, Q51, Q57,
    Date: 2016–02
  2. By: Raphael Studer; Rainer Winkelmann
    Abstract: We propose a new non-linear regression model for rating dependent variables. The rating scale model accounts for the upper and lower bounds of ratings. Parametric and semi-parametric estimation is discussed. An application investigates the relationship between stated health satisfaction and physical and mental health scores derived from self-reports of various health impairments, using data from the German Socio-Economic Panel. We compare our new approach to modeling ratings with ordinary least squares (OLS). In one specification, OLS average effects exceed that from our rating scale model by up to 50 percent. Also, OLS in-sample mean predictions violate the upper bound of the dependent variable in a number of cases.
    Keywords: Quasi maximum likelihood, bounded dependent variable, German Socio-Economic Panel
    JEL: C25 I10
    Date: 2016
  3. By: Koen Decancq; Erik Schokkaert; Blanca Zuluaga
    Abstract: In many applications of the capability approach it is necessary to rank individuals with respect to their well-being. This raises the diââ¬âcult question of how to select the weights to be attached to the relevant functionings or capabilities. We explore the possibility of using individual valuations to set these weights and we propose the equivalent income measure as a specific well-being measure that is consistent with these individual valuations. We discuss its implementation and compare the results to four alternative well-being measures based on Colombian data for 2008: income, subjective well-being, the official SISBEN index, and the Colombian Multidimensional Poverty Index (CMPI). We find that there is remarkably little overlap between the different measures. The different well-being measures identify different individuals as worst-off. This finding highlights the empirical relevance of the selection of the well-being measure when implementing the capability approach.
    Date: 2016–06
  4. By: Nicolò Bellanca (Dipartimento di Scienze per l'Economia e l'Impresa); Benedetto Rocchi (Dipartimento di Scienze per l'Economia e l'Impresa)
    Abstract: In the first part of this paper, we revisit some concepts proposed by Nicholas Georgescu-Roegen. Without attempting an overall interpretation of Georgescu’s reflection, and without any intent of philological completeness, we want to show the strength and the suggestiveness of some of his insights, with the aim of setting a conception of human well-being that is intrinsically permeated by subjective time. We argue that an important part of human well-being simply depends on our being able to live-in-time. The Georgescu-Roegen’s conception of personal time as an irrevocable flow of living suggests that the right perspective in analysing the use of time made by persons in their never-ending search of well-being is a diachronic one. In the second we discuss the consequences of adopting a diachronic perspective in the study of relationships between time use and well-being and try to suggest a coherent empirical approach.
    Keywords: Georgescu-Roegen, time, well-being
    Date: 2015
  5. By: Daniel Ayalew Mekonnen; Nicolas Gerber
    Abstract: Despite some improvements in recent years, poverty and food insecurity remain widespread and the main challenges in Ethiopia. Using individual and household level data collected in rural Ethiopia, we examine if aspirations are strongly associated with well-being outcomes, as posited in the aspirations failure framework articulated by Ray (2006) and others. We employ both bivariate and multivariate analyses. We find that aspirations (particularly that of the household head) are indeed strongly associated with the household per-capita income and expenditure and with various triangulating measures of household food (in)security including per-capita calorie consumption, the food consumption score (FCS), the household dietary diversity score (HDDS), and the household food insecurity access scale (HFIAS). Contrary to a few other studies, we also find strong evidence that, in rural Ethiopia, aspirations are positively associated with satisfaction in life and/or happiness. Findings in this study provide suggestive evidence that policies aimed at improving well-being outcomes might benefit from multiple effects (both direct and indirect) if they incorporate aspirations raising strategies.
    JEL: D1 O1 Q1 Q12 Q16
    Date: 2016–05
  6. By: Fortin, Ines (Financial Markets and Econometrics, Institute for Advanced Studies, Vienna, Austria); Hlouskova, Jaroslava (Financial Markets and Econometrics, Institute for Advanced Studies, Vienna, Austria and Department of Economics, Thompson Rivers University, Kamloops, Canada); Tsigaris, Panagiotis (Department of Economics, Thompson Rivers University, Kamloops, Canada)
    Abstract: This study extends the literature on portfolio choice under prospect theory preferences by introducing a two-period life cycle model, where the household decides on optimal consumption and investment in a portfolio with one risk-free and one risky asset. The optimal solution depends primarily on the household’s choice of the present value of the consumption reference levels relative to the present value of its endowment income. If the present value of the consumption reference levels is set below the present value of endowment income, then the household behaves in such a way to avoid relative losses in consumption in any present or future state of nature (good or bad). As a result the degree of loss aversion does not directly affect optimal consumption and risk taking activity. However, it must be sufficiently high in order to rule out outcomes with relative losses. On the other hand, if the present value of the consumption reference levels is set exactly equal to the present value of the endowment income, i.e., the household sets its reference levels such that they are in balance with its income, then the household’s optimal consumption is the reference consumption in both periods and the household will not invest in the risky asset. Finally, if the present value of the household’s consumption reference levels is set above the present value of its endowment income, then the household cannot avoid experiencing a relative loss in consumption, either now or in the future. As a result, loss aversion directly affects consumption and risky investment. Reference levels play a significant role in consumption and risk taking activity. In most cases the household will “follow the Joneses” if the reference levels are set equal to the consumption levels of the Joneses. Independent of how consumption reference levels are set, being more ambitious, i.e., increasing one’s reference levels, will result in less happiness. The only case when this is not true is when reference levels increase with growing income (and the present value of reference levels is set below the present value of endowment income).
    Keywords: prospect theory, loss aversion, consumption-savings decision, portfolio allocation, happiness
    JEL: G02 G11 E20
    Date: 2016–06
  7. By: Amavilah, Voxi Heinrich
    Abstract: In conventional welfare economics Pareto optimality requires competitive markets in which rational sellers use pure private resources to produce pure private goods and services for rational consumers. Although such theory acknowledges that market failures prevent Pareto optimality, it continues to advocate efficiency alone as the first best policy for society. Pope Francis has argued recently that the current economics of indifference to the common good is responsible for the enormous environmental damage to Earth (‘our common home’). He calls for an integral approach to consumption and production, one that takes the common good as the source and object of well-being. In that way consumption and production depend on the common good, and so too do associated time-discounted social satisfaction and surplus. This means that a socially desirable program is one that optimizes integral satisfaction and surplus, so that consumption and production functions are a system of endogenous (dynamical) simultaneous equations in which the utility of the integral person is a function of the social utility. I use insights from the economic models of resources (both exhaustible and renewable) to describe what the Pope means. The description is rather loose, but the implications of the exercise are wide and far-reaching. For example, I find that the socially efficient price is not Pareto efficient; it is one that allows for the marginal social utility, marginal social surplus, and marginal social royalty to the common good. In other words, under conventional welfare economics the marginal cost of generating the present value of the social surplus that eats up the present value of the rent to the common good guarantees the disutility of the integral person even as it meets the utility of the rational person. One policy implication of such a result recommends consideration of the common good as a key variable in both production and consumption. Precisely how that can be done is the direction in which future research must go. The question this result raises is about how to quantify the common good. For Pope Francis the level of analysis is integral subsidiarity, where the environment would be a good proxy for the common input to production and the common outputs are reduce poverty, inclusion (reduced inequality), and the protection of the common input.
    Keywords: Social welfare, papal social welfare, common good, Pareto optimality, integral individual, integral firm, integral optimality, Pope Francis’s social welfare hypothesis, rational individual, rational firm
    JEL: B59 D31 D62 D63 H44 I31 N5 Q32 Q5 Z13
    Date: 2016–06–04
  8. By: Kesavayuth, Dusanee; Zikos, Vasileios
    Abstract: This study examines the role of people’s subjective well-being in relation to one of the most important economic shocks – unemployment. It empirically investigates the impact of well-being on (i) unemployment propensity, (ii) maintaining employment and (iii) exiting from unemployment. We find that being more satisfied with life and having better mental health in the previous wave predict a lower probability of being currently unemployed. We further show that life satisfaction and mental health may matter significantly for maintaining employment. These effects are qualitatively similar across genders and ethnic groups of the respondents. The current paper thus provides new empirical evidence on the link between well-being and job loss by highlighting the importance of having high levels of well-being.
    Keywords: life satisfaction, mental distress, well-being, unemployment
    JEL: D03 I31
    Date: 2016–06–10

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