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An Examination of the Dynamics of Happiness Using Vector Autoregressions

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Author Info
Martin Binder ()
Alex Coad ()

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Abstract

We use a panel vector autoregressions model to examine the coevolution of changes in happiness and changes in income, health, marital status as well as employment status for the British Household Panel Survey (BHPS) data set. This technique allows us to simultaneously analyze the impact of the aforementioned factors on each other. We find that increases in happiness are associated with subsequent increases in income, marriage, employment, and health variables, while increases in the these life-domain variables (except health) tend to be followed by decreases in happiness in subsequent periods, suggesting adaptation dynamics in all domains. These findings are quite robust to different model specifications.

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Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2009-04.

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Date of creation: Apr 2009
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Handle: RePEc:esi:evopap:2009-04

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Keywords: Happiness dynamics; vector autoregressions; subjective well-being; BHPS Length 36 pages;

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Find related papers by JEL classification:
I31 - Health, Education, and Welfare - - Welfare and Poverty - - - General Welfare
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data

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  1. David W. Johnston & Carol Propper & Michael A. Shields, 2007. "Comparing Subjective and Objective Measures of Health: Evidence from Hypertension for the Income/Health Gradient," IZA Discussion Papers 2737, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Alex Coad, 2007. "Exploring the "mechanics" of firm growth : evidence from a short-panel VAR," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00175048_v1, HAL. [Downloadable!]
  3. Gardner, Jonathan & Oswald, Andrew, 2004. "How is mortality affected by money, marriage, and stress?," Journal of Health Economics, Elsevier, vol. 23(6), pages 1181-1207, November. [Downloadable!] (restricted)
  4. Oswald, Andrew, 1997. "Happiness and Economic Performance," The Warwick Economics Research Paper Series (TWERPS) 478, University of Warwick, Department of Economics. [Downloadable!]
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  5. Richard Lucas & Andrew Clark, 2006. "Do People Really Adapt To Marriage?," Journal of Happiness Studies, Springer, vol. 7(4), pages 405-426, November. [Downloadable!] (restricted)
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  6. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
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  7. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07. [Downloadable!] (restricted)
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  8. Graham, Carol & Eggers, Andrew & Sukhtankar, Sandip, 2004. "Does happiness pay?: An exploration based on panel data from Russia," Journal of Economic Behavior & Organization, Elsevier, vol. 55(3), pages 319-342, November. [Downloadable!] (restricted)
  9. Alex Coad, 2007. "Exploring the "mechanics" of firm growth : evidence from a short-panel VAR," Documents de travail du Centre d'Economie de la Sorbonne r07037, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne. [Downloadable!]
  10. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
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  11. Oswald, Andrew J. & Powdthavee, Nattavudh, 2008. "Does happiness adapt? A longitudinal study of disability with implications for economists and judges," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1061-1077, June. [Downloadable!] (restricted)
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  12. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July. [Downloadable!] (restricted)
  13. Stevenson, Betsey & Wolfers, Justin, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," CEPR Discussion Papers 6944, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring. [Downloadable!] (restricted)
  15. Blackburn, McKinley & Korenman, Sanders, 1994. "The Declining Marital-Status Earnings Differential," Journal of Population Economics, Springer, vol. 7(3), pages 247-70, July.
  16. Kate Antonovics & Robert Town, 2004. "Are All The Good Men Married? Uncovering the Sources of the Marital Wage Premium," University of California at San Diego, Economics Working Paper Series 2003-15, Department of Economics, UC San Diego. [Downloadable!]
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  17. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March. [Downloadable!] (restricted)
  18. Shiv, Baba & Huber, Joel, 2000. " The Impact of Anticipating Satisfaction on Consumer Choice," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 27(2), pages 202-16, September.
  19. van Praag, Bernard M. S., 1991. "Ordinal and cardinal utility : An integration of the two dimensions of the welfare concept," Journal of Econometrics, Elsevier, vol. 50(1-2), pages 69-89, October. [Downloadable!] (restricted)
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  20. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
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