The Economics of Happiness (eBook)

Foreword: Happiness or GDP? 5
Contents 9
Contributors 11
List of Figures 14
List of Tables 21
Part I: Introduction 25
Chapter 1: The Relevance of Richard A. Easterlin´s Groundbreaking Work. A Historical Perspective 26
1.1 The Historical Context 28
1.1.1 Early Economists Were Interested in Happiness 28
1.1.2 Early Economists Followed the Ethical Tradition When Addressing Happiness 29
1.1.3 Jeremy Bentham and Happiness as an Experience People Have 29
1.1.4 Utilitarianism Gets into Economics 30
1.1.5 Economics Focuses on Explaining Choice While Marginalizing People´s Happiness 31
1.1.6 The Emphasis on Consumption. The Realm of Objects 32
1.1.7 Progress as Economic Growth. The Increasing Relevance of GDP 33
1.1.8 Does Economic Growth Improve the Human Lot? Some Doubts Existed 34
1.2 Groundbreaking Work by Richard A. Easterlin 36
1.2.1 Richard A. Easterlin: Pioneer in Happiness Research 36
1.2.2 The Empirical Evidence: The Easterlin Paradox 37
1.2.3 Immediate Impact of Easterlin´s Research 38
1.3 The Economics of Happiness 39
1.3.1 Happiness Is Back into Economics 39
1.3.2 People´s Reports Provide Useful Information Not Available Everywhere 39
1.3.3 The Importance of Subjectivity 40
1.3.4 The Person as Authority to Judge Her Life 41
1.3.5 Working with Concrete Human Beings 41
1.3.6 New Directions in Welfare Economics 42
1.3.7 On the Notion of Progress 43
1.3.8 Doing Research on Happiness 44
1.4 The Following Chapters 44
General References 45
Part II: Income and Happiness 48
Chapter 2: Different Versions of the Easterlin Paradox: New Evidence for European Countries 49
2.1 Introduction 50
2.2 State of the Debate 54
2.3 Estimation Strategy 56
2.3.1 Estimation Equations for Testing the Country-Group Variants of the Easterlin Paradox 56
2.3.2 Estimation Equations for Testing the Individual-Country Variants of the Easterlin Paradox 59
2.4 Data and Descriptive Statistics 61
2.5 Results 63
2.5.1 Results for Groups of Countries 63
2.5.2 Results for Individual Countries 69
2.6 Conclusions 74
References 75
Chapter 3: Lottery Wins and Satisfaction: Overturning Brickman in Modern Longitudinal Data on Germany 78
3.1 Introduction 78
3.2 Summary of the Main Lottery Literature 79
3.3 New Empirical Evidence on the Link Between Lottery Wins and Wellbeing 95
3.3.1 Data 95
3.3.2 The Sample of Winners 97
3.3.3 The Decision to Play 98
3.4 Econometric Specification and Results 100
3.4.1 Life Satisfaction and Lottery Participation 101
3.4.2 Winning in the Lottery and Satisfaction with Income 102
3.4.3 Winning in the Lottery and Life Satisfaction 103
3.5 Summary and Conclusions 104
References 104
Chapter 4: Relative Income, Subjective Wellbeing and the Easterlin Paradox: Intra- and Inter-national Comparisons 106
4.1 Introduction 106
4.2 Related Literature and Methodology 108
4.2.1 Life Satisfaction and Subjective Wellbeing 108
4.2.2 Easterlin Paradox 108
4.2.3 Rural Versus Urban Life Satisfaction 109
4.2.4 Methodology 110
4.3 Data 112
4.4 Results 117
4.5 Conclusions 122
References 124
Chapter 5: Relative Income and Happiness in Latin America: Implications for Inequality Debates 127
5.1 Introduction 127
5.2 Literature Review 129
5.2.1 Absolute Income in Economic Theory 129
5.2.2 Relative Income in Economic Theory 130
5.2.3 Reference Groups: Sociological Theories 131
5.2.4 Relative Income and Happiness 131
5.2.5 Methodological Issues in the Study of Relative Income 132
5.2.6 Relative Income and Economic Policy 133
5.3 The Database 134
5.3.1 The Gallup Survey 134
5.3.2 The Information 134
5.3.3 Reference-Group Construction: Country, Age and Gender 136
5.4 Relative Income and Well-being 136
5.4.1 Estimating the Impact of Reference Income 136
5.4.2 The Importance of Absolute and Relative Income 138
5.4.3 Asymmetric Comparisons 139
5.5 Final Considerations 141
5.5.1 Main Findings 141
5.5.2 Findings´ Implications 142
Appendix 143
References 144
Part III: Happiness in Welfare Economics 147
Chapter 6: Does Happiness Improve Welfare Economics a Lot? 148
6.1 Introduction 148
6.2 Exposing a Hidden Truth: Incongruences of Orthodox Welfare Analysis in Economics 149
6.3 Happiness Forcing Its Way Amidst the Mainstream and the Capabilities Approach 153
6.3.1 Mainstream Welfare Analysis 153
6.3.1.1 Tools Based on the Rhetoric of Ordinal UtilityThe tools analyzed here are usually conceived of as operational under or... 154
6.3.1.2 Theorems 155
6.3.1.3 Social Decision Rules 156
6.3.1.4 Tools for Applied WE 157
6.4 The Capabilities Critique 160
6.5 Happiness: Accepting Subjectivity in Welfare Economic Analysis 163
6.6 The Policy Issue: Happiness is Different from Capabilities and the Mainstream 165
6.6.1 Freedom 168
6.6.2 Income 169
6.7 Conclusion 171
References 172
Chapter 7: Why the Easterlin Paradox? The Scitovsky Hypothesis 176
7.1 Introduction 176
7.2 The Easterlin Paradox and the Open Issues 177
7.2.1 The Two Versions of the `Easterlin ParadoxEasterlin Paradox´ 177
7.2.2 Easterlin´s Explanation of the Paradox 179
7.3 Scitovsky´s Hypothesis 180
7.3.1 Scitovsky´s Own Discovery of the Paradox 180
7.3.2 Scitovsky´s Explanation of the Paradox 181
7.3.3 What Scitovsky Added to Easterlin´s Explanation of the Paradox 182
7.4 Some Supporting Evidence from the Literature 183
7.5 Conclusions 186
References 186
Chapter 8: Homo Economicus and Happiness: Towards More Sustainable Development 190
8.1 Introduction 190
8.2 Growth: Homo Economicus and the Focus on Income 192
8.3 Individual Level: Individual and Corporate Sustainability 196
8.4 Societal Level: Global Sustainable Development 201
8.5 Summary and Outlook 205
References 206
Part IV: Applications of Happiness in Economics 211
Chapter 9: Distaste for Inequality? The Role of Risk Aversion 212
9.1 Introduction and Background 212
9.2 Empirical Strategy 214
9.2.1 The Model and Its Estimation 214
9.2.2 Measuring Strategy 216
9.2.2.1 Life Satisfaction 216
9.2.2.2 Risk Attitudes 217
9.2.2.3 Are Risk Changes Endogenous to Life Events and Individual Characteristics? 218
9.2.2.4 Inequality: The Gini Coefficient 218
9.2.3 The Data 219
9.3 Results 221
9.3.1 The Effect of Inequality on Satisfaction 221
9.3.2 The Role of Risk on Shaping Inequality Dislike 222
9.3.3 Robustness Analysis 223
9.3.4 Heterogeneous Effects 225
9.4 Conclusions 227
Appendix 228
References 230
Chapter 10: Advertising as a Major Source of Human Dissatisfaction: Cross-National Evidence on One Million Europeans 233
10.1 Introduction 234
10.2 Results 235
10.3 Conclusions 243
Appendix on Data and Methods 253
References 254
Chapter 11: What Makes for a Good Job? Evidence Using Subjective Wellbeing Data 256
11.1 Introduction 257
11.2 Data and Methods 258
11.3 Results 259
11.3.1 Pay 260
11.3.2 Working Hours 265
11.3.3 Working Hours Mismatch 266
11.3.4 Work-Life Balance 267
11.3.5 Skills Match 269
11.3.6 Job Security 270
11.3.7 Difficulty, Stress, Danger 270
11.3.8 Opportunities for Advancement 271
11.3.9 Independence 271
11.3.10 Interesting Job 273
11.3.11 Interpersonal Relationships 273
11.3.12 Usefulness 275
11.4 Discussion 277
References 280
Part V: Happiness in Development 284
Chapter 12: Unhappiness as an Engine of Economic Growth 285
12.1 Introduction 285
12.2 Disquieting Trends 287
12.2.1 Declining Subjective Well-being 287
12.2.2 Declining Objective Well-being 288
12.2.3 Declining Social Capital 290
12.2.4 Soaring Materialism and Social Comparisons 291
12.2.5 Overwork 292
12.3 Defensive Growth 293
12.3.1 Defensive Growth in Developing Countries 295
12.3.2 The Key Equations of Defensive Growth 296
12.4 Evidence of Defensive Growth 297
12.4.1 Envying Alone 297
12.4.2 Socially Rich Countries have Low Well-being Inequality 299
12.4.3 Work Hours and US-Europe Differences 300
12.5 US: Loneliness, Fear and Ill-Being as Drivers of Growth 301
12.5.1 The Industry of Fear: Security and Social Control 301
12.5.2 The Industry of Economic Segregation: Urban Sprawl 303
12.5.3 The Industry of Malaise: Healthcare 303
12.5.4 Troubled Lives, Troubled Health 305
12.6 Policies for Social Capital 306
12.7 Conclusion 308
References 309
Chapter 13: Keynes´ Grandchildren and Easterlin´s Paradox: What Is Keeping Us from Reducing Our Working Hours? 316
13.1 Introduction 316
13.2 Secular Trends in Working Hours: Evidence and Explanations 318
13.3 Easterlin´s Paradox 320
13.4 Relative Income, Hedonic Adaptation and Working Time 322
13.5 Explaining Labor Supply in Terms of Income and Substitution Effects 324
13.6 Conclusion 328
References 329
Chapter 14: Using Well-Being Metrics to Assess Social Well-Being and Ill-Being: Lessons from Rising Mortality Rates in the Uni... 331
14.1 Introduction 332
14.1.1 Existing Studies 332
14.2 Data and Empirical Specification 334
14.3 Baseline Results and Interpretation 337
14.3.1 Results 337
14.3.2 Discussion 348
14.3.3 Alternative Specifications Across Race and Rural Areas 352
14.4 Do Desperation and Premature Mortality Go Together? An Initial Exploration 352
14.5 Interrelated Trends and Explanations 358
14.5.1 The Role of Place 360
14.6 Conclusions and Potential Policies 362
References 364
Chapter 15: When Does Economic Growth Improve Well-Being? 366
15.1 Introduction 366
15.2 Easterlin Paradox and Beyond 367
15.2.1 Defensive Growth 369
15.3 Conditions for a Happy Growth 370
15.3.1 Cross-Country Studies 370
15.3.2 Within Country Studies 375
15.4 Conclusion 377
References 379
Chapter 16: The Subjective Well-Being Political Paradox: Evidence from Latin America 382
16.1 Introduction 382
16.2 Background 384
16.3 Methods 386
16.3.1 Data 386
16.3.2 Measures 386
16.3.2.1 Dependent Variables 386
Political Orientation 387
Additional Measures 387
16.3.3 Analytical Strategy 389
16.4 Results 389
16.5 Discussion and Conclusion 391
References 393
Part VI: Happiness Along the Life Course and the Social Context 396
Chapter 17: Born to Be Mild? Cohort Effects Don´t (Fully) Explain Why Well-Being Is U-Shaped in Age 397
17.1 Introduction 397
17.2 Cohort or Life-Cycle? 399
17.2.1 Data 400
17.3 Well-Being and Age: Pooled and Panel Results 402
17.3.1 Well-Being and Age in Pooled Data 402
17.3.2 Test 1: Does the U-Shape Move to the Right by One Year Per Survey Wave? 403
17.3.3 Test 2: Introducing Individual Fixed Effects 406
17.3.4 Interpreting the Results 409
17.3.5 What Should We Control For? 411
17.3.6 Is Everyone the Same? 412
17.4 Conclusion 412
Appendices 413
Appendix A 413
Appendix B 414
Appendix C 415
References 416
Chapter 18: Happiness Amongst Teens in Australia 419
18.1 Introduction 419
18.1.1 The Literature on the Happiness of Children Versus Adults 421
18.2 Data and Survey Method 424
18.2.1 The HILDA Data 424
18.2.2 Collecting Data from Children 424
18.2.3 Survey Questions 425
18.2.3.1 The Happiness Question 425
18.2.3.2 Demographic Questions 425
18.2.3.3 Personality 426
18.2.3.4 The Life Satisfaction Domain Measures 427
18.3 Analyses 427
18.3.1 Summary Statistics 427
18.3.2 Extending Our View of Happiness over a Lifetime 429
18.3.3 The Determinants of Life Satisfaction 430
18.3.4 Decomposing Changes in Life Satisfaction 432
18.4 Conclusions and Discussion 436
Appendices 438
Appendix A: Survey Questions 438
Appendix B: Descriptive Statistics 440
Appendix C: Regression Results 442
References 444
Chapter 19: Do Humans Suffer a Psychological Low in Midlife? Two Approaches (With and Without Controls) in Seven Data Sets 448
19.1 Introduction 449
19.2 Analysis 450
19.2.1 Europe (Eurobarometer Data) 454
19.2.2 Europe (ESS Data) 455
19.2.3 Multi-country (ISSP Data) 456
19.2.4 USA (GSS Data) 457
19.2.5 Multi-country (Latino Barometer Data) 458
19.3 Discussion 459
19.4 Conclusions 460
Appendix 461
References 461
Chapter 20: Happiness at Different Ages: The Social Context Matters 463
20.1 Introduction 464
20.2 Assessing the U-Shape Consequences of the Workplace Social Context 466
20.3 The U-Shape Is Flatter for Those Who Are Married 475
20.4 Assessing the Combined Effects of the Social Context at Work and at Home 479
20.5 The U-Shape Is Also Flatter for Those Who Have Lived Longer in Their Communities 483
20.6 Conclusion 487
References 488