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Happiness and time allocation

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Author Info

  • Baucells, Manel

    ()
    (IESE Business School)

  • Sarin, Rakesh K.

    (UCLA Anderson School of Management)

Abstract

We consider a resource allocation problem in which time is the principal resource. Utility is derived from time-consuming leisure activities, as well as from consumption. To acquire consumption, time needs to be allocated to income generating activities (i.e., work). Leisure (e.g., social relationships, family and rest) is considered a basic good, and its utility is evaluated using the Discounted Utility Model. Consumption is adaptive and its utility is evaluated using a reference-dependent model. Key empirical findings in the happiness literature can be explained by our time allocation model. Further, we examine the impact of projection bias on time allocation between work and leisure. Projection bias causes individuals to overrate the utility derived from income; consequently, individuals may allocate more than the optimal time to work. This misallocation may produce a scenario in which a higher wage rate results in a lower total utility.

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Bibliographic Info

Paper provided by IESE Business School in its series IESE Research Papers with number D/710.

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Length: 38 pages
Date of creation: 09 Sep 2007
Date of revision:
Handle: RePEc:ebg:iesewp:d-0710

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Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/
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Related research

Keywords: Life satisfaction; Work; Leisure; Social comparison; Adaptation;

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