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Measuring welfare: Latent variable models for happiness and capabilities in the presence of unobservable heterogeneity

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  • Anand, Paul
  • Krishnakumar, Jaya
  • Tran, Ngoc Bich

Abstract

The paper contributes to the operationalisation of the capabilities approach to welfare economics by developing and analyzing data on the freedoms of adults in Argentina. Specifically, it reports on the development and delivery of a survey instrument for measuring capabilities, calculates for each respondent a Nehring-Puppe type index of capabilities and examines the distribution of index scores. The main analytic part of the paper then goes on to develop a generalized linear latent and mixed model (GLLAMM) for assessing the impact of capabilities on life satisfaction, in which allowance is made for (i) unobserved heterogeneity and (ii) possible endogeneity, by introducing latent individual effects and by instrumenting capability variables using income and other socio-economic variables. Our empirical results show that empathy, self-worth, goal-autonomy, discrimination, safety and stress are statistically significant determinants of life satisfaction, in a decreasing order of importance. The paper concludes by suggesting that, if replicated, the findings have profound implications for the conceptualisation and evaluation of economic progress.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 3-4 (April)
Pages: 205-215

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:3-4:p:205-215

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Capabilities Freedoms GLLAMM Happiness Instrumental variables Multi-dimensionality Unobserved heterogeneity;

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References

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  1. Sen, Amartya K, 1979. "Personal Utilities and Public Judgements: Or What's Wrong with Welfare Economics?," Economic Journal, Royal Economic Society, vol. 89(355), pages 537-58, September.
  2. Jaya Krishnakumar, 2004. "Going Beyond Functionings to Capabilities : an Econometric Model to Explain and Estimate Capabilities," Research Papers by the Institute of Economics and Econometrics, Geneva School of Economics and Management, University of Geneva 2004.12, Institut d'Economie et Econométrie, Université de Genève.
  3. BOSSERT, Walter & D'AMBROSIO, Conchita & PERAGINE, Vito, 2004. "Deprivation and Social Exclusion," Cahiers de recherche 2004-01, Universite de Montreal, Departement de sciences economiques.
  4. Wulf Gaertner & Yongsheng Xu, 1999. "On the structure of choice under different external references," Economic Theory, Springer, vol. 14(3), pages 609-620.
  5. Duclos, Jean-Yves & Sahn, David & Younger, Stephen D., 2001. "Robust Multidimensional Poverty Comparisons," Cahiers de recherche 0115, Université Laval - Département d'économique.
  6. Heckman, James J., 2007. "The Economics, Technology and Neuroscience of Human Capability Formation," IZA Discussion Papers 2875, Institute for the Study of Labor (IZA).
  7. Paul Anand & Graham Hunter & Ian Carter & Keith Dowding & Francesco Guala & Martin Van Hees, 2009. "The Development of Capability Indicators," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 10(1), pages 125-152.
  8. Nehring,K. und C.Puppe, 1999. "A Theory of Diversity," Discussion Paper Serie A 605, University of Bonn, Germany.
  9. Francois Bourguignon & Francisco H.B. Ferreira & Marta Menéndez, 2005. "Inequality of Opportunity in Brazil," Ibero America Institute for Econ. Research (IAI) Discussion Papers 133, Ibero-America Institute for Economic Research.
  10. James Banks, 2006. "Economic capabilities, choices and outcomes at older ages," Fiscal Studies, Institute for Fiscal Studies, vol. 27(3), pages 281-311, August.
  11. Klasen, Stephan, 2000. "Measuring Poverty and Deprivation in South Africa," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(1), pages 33-58, March.
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Citations

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Cited by:
  1. Andreassen, Leif & Dagsvik, John & Di Tommaso, Maria Laura, 2013. "Measuring capabilities with random scale models. Women’s freedom of movement," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201334, University of Turin.
  2. Schurer, S.; & Yong, J.;, 2012. "Personality, well-being and the marginal utility of income: What can we learn from random coefficient models?," Health, Econometrics and Data Group (HEDG) Working Papers 12/01, HEDG, c/o Department of Economics, University of York.
  3. Mario Biggeri & Nicolò Bellanca, 2013. "Capabilities and Human Dilemmas: How to Cope with Incompleteness," Working Papers - Economics wp2013_08.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
  4. Hasan, Hamid, 2013. "Capabilities vis-a-vis Happiness: Evidence from Pakistan," MPRA Paper 44892, University Library of Munich, Germany.
  5. Al-Janabi, Hareth & Keeley, Thomas & Mitchell, Paul & Coast, Joanna, 2013. "Can capabilities be self-reported? A think aloud study," Social Science & Medicine, Elsevier, vol. 87(C), pages 116-122.
  6. repec:mod:depeco:0009 is not listed on IDEAS
  7. Christian Schubert & Martin Binder, 2014. "Reconciling Normative and Behavioral Economics: An Application of the “Naturalistic Approach” to the Adaptation Problem," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 234(2-3), pages 350-365, April.
  8. Krenz, Astrid, 2013. "Cross-country heterogeneity and endogeneity bias in life satisfaction estimations - Macro- and micro-level evidence for advanced, developing and transition countries," Center for European, Governance and Economic Development Research Discussion Papers 155, University of Goettingen, Department of Economics.
  9. Binder, Martin & Witt, Ulrich, 2012. "A critical note on the role of the capability approach for sustainability economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(5), pages 721-725.
  10. Martin Binder, 2013. "Subjective Well-being Capabilities: Bridging the Gap between the Capability Approach and Subjective Well-Being Research," Papers on Economics and Evolution 2013-02, Philipps University Marburg, Department of Geography.

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