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Growth and the relativity of satisfaction

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  • de la Croix, David

Abstract

We extent Ramsey’s model to be in accordance with the facts that self-reported satisfaction levels are almost unrelated to economic prosperity, both across countries and across time. We assume that things are judged by the extent to which they depart from collective norms. Norms are based on the past experience of all agents. A special case is when norms are build on the basis of the best previous experience. Agents do not internalize their own effect on collective norms and the competitive equilibrium is thus sub-optimal. An optimal solution could however be decentralized by a planner. The dynamics displays oscillations, slow adjustment speed or path dependency and substantial transitory effects of fiscal policy.

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Bibliographic Info

Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 36 (1998)
Issue (Month): 2 (September)
Pages: 105-125

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Handle: RePEc:eee:matsoc:v:36:y:1998:i:2:p:105-125

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Web page: http://www.elsevier.com/locate/inca/505565

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References

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  1. Ruut Veenhoven, 1991. "Is happiness relative?," Social Indicators Research, Springer, vol. 24(1), pages 1-34, February.
  2. Wayne E. Ferson & George M. Constantinides, 1991. "Habit Persistence and Durability in Aggregate Consumption: Empirical Tests," NBER Working Papers 3631, National Bureau of Economic Research, Inc.
  3. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
  4. Alex Michalos, 1980. "Satisfaction and happiness," Social Indicators Research, Springer, vol. 8(4), pages 385-422, December.
  5. Ng, Yew-Kwang, 1987. "Relative-Income Effects and the Appropriate Level of Public Expenditure," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 293-300, June.
  6. de la Croix, David & Palm, Franz & Pfann, Gerard, 1993. "A Dynamic Contracting Model for Wages and Employment in three European Economies," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1993021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  7. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  8. de la Croix, David & Michel, Philippe, 1997. "Optimal growth when tastes are inherited," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Jun 1997.
  9. Stern, Nicholas, 1992. "From the static to the dynamic: some problems in the theory of taxation," Journal of Public Economics, Elsevier, vol. 47(2), pages 273-297, March.
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  12. Ng, Yew-Kwang, 1980. "Money and Happiness: First Lesson in Eudaimonology?," Kyklos, Wiley Blackwell, vol. 33(1), pages 161-63.
  13. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
  14. Robert J. Barro, 1995. "Inflation and Economic Growth," NBER Working Papers 5326, National Bureau of Economic Research, Inc.
  15. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November.
  16. de la Croix, David, 1996. "The dynamics of bequeathed tastes," Economics Letters, Elsevier, vol. 53(1), pages 89-96, October.
  17. Ng, Yew-Kwang & Wang, Jianguo, 1993. "Relative income, aspiration, environmental quality, individual and political myopia : Why may the rat-race for material growth be welfare-reducing?," Mathematical Social Sciences, Elsevier, vol. 26(1), pages 3-23, July.
  18. Boucekkine, Raouf, 1995. "An alternative methodology for solving nonlinear forward-looking models," Journal of Economic Dynamics and Control, Elsevier, vol. 19(4), pages 711-734, May.
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Citations

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Cited by:
  1. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute for the Study of Labor (IZA).
  2. Phu Nguyen-Van & Thi Kim Cuong Pham, 2008. "Endogenous Fiscal Policies, Environmental Quality, and Status-Seeking Behavior," Working Papers 29, Development and Policies Research Center (DEPOCEN), Vietnam.
  3. Collard, Fabrice & de la Croix, David, 1996. "Gift exchange and the business cycle: the fair wage strikes back," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Apr 1997.
  4. Varvarigos, Dimitrios, 2011. "Non-monotonic welfare dynamics in a growing economy," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 303-312, June.
  5. Easterlin, Richard A., 2001. "Life cycle welfare: evidence and conjecture," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 30(1), pages 31-61, January.
  6. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2006. "Welfare Implications Of The Interaction Between Habits And Consumption Externalities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 557-571, 05.
  7. de la Croix, David, 2001. "Growth dynamics and education spending: The role of inherited tastes and abilities," European Economic Review, Elsevier, vol. 45(8), pages 1415-1438, August.
  8. Théophile AZOMAHOU & Phu NGUYEN VAN & T. Kim-Cuong PHAM, 2003. "Relativité de la satisfaction dans la vie : une étude sur données de panel," Working Papers of BETA 2003-06, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  9. Patterson, Trista M. & Niccolucci, Valentina & Bastianoni, Simone, 2007. "Beyond "more is better": Ecological footprint accounting for tourism and consumption in Val di Merse, Italy," Ecological Economics, Elsevier, vol. 62(3-4), pages 747-756, May.
  10. Jaime Alonso-Carrera & Jordi Caball?Author-Email: jordi.caballe@uab.es & Xavier Raurich, 2001. "Income Taxation with Habit Formation and Consumption Externalities," UFAE and IAE Working Papers 496.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  11. Lionel, Artige & Carmen Camacho & David de la Croix, 2003. "Wealth breeds decline : Reversals of leadership and consumption habits," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  12. Easterlin, Richard A. & Sawangfa, Onnicha, 2007. "Happiness and Domain Satisfaction: Theory and Evidence," IZA Discussion Papers 2584, Institute for the Study of Labor (IZA).
  13. Dimitrios Varvarigos, 2010. "Non-Monotonic Welfare Dynamics in a Model of Sustained Income Growth," Discussion Papers in Economics 10/02, Department of Economics, University of Leicester.

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