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The Macroeconomics of Happiness

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  • Di Tella, R.
  • MacCulloch, R.J.: Oswald, A.J.

Abstract

A large literature in macroeconomics assumes a social objective function, W(pi,U), where inflation, pi, and unemployment, U, are bads. This paper provides some of the first formal evidence for such an approach. It issues data on the reported well-being levels of approximately one quarter of a million sampled Europeans and Americans from the 1970's to the 1990's. After controlling for personal characteristics, year dummies and countries fixed effects, we find that the data trace out a W(pi,U) function. It is approximately a linearly additive "misery index". The paper calculates the implied dollar value of a low inflation rate. It also examines the struture of happiness equations across countries and time.

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Bibliographic Info

Paper provided by Centre for Economic Performance & Institute of Economics in its series Papers with number 19.

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Length: 38 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:cepies:19

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Postal: United Kingdom; Centre for Economic Performance & Institute of Economics and Statistics, Oxford University. Manor Road. Oxford OX1 3Ul
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Web page: http://www.economics.ox.ac.uk/
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Keywords: UNEMPLOYMENT ; INFLATION;

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References

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  1. Bruno S. Frey & Alois Stutzer, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series 246, CESifo Group Munich.
  2. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
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  4. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 13-70 National Bureau of Economic Research, Inc.
  5. Yew-Kwang, Ng, 1997. "A case for Happiness, Cardinalism, and Interpersonal Comparability," Departmental Working Papers _081, Chinese University of Hong Kong, Department of Economics.
  6. Di Tella, R. & MacCulloch, R., 1996. "The Determination of Unemployment Benefits," Economics Series Working Papers 99180, University of Oxford, Department of Economics.
  7. Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
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  9. Konow, James & Earley, Joseph, 2007. "The Hedonistic Paradox: Is Homo Economicus Happier?," MPRA Paper 2728, University Library of Munich, Germany.
  10. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  11. Kahneman, Daniel & Wakker, Peter P & Sarin, Rakesh, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 375-405, May.
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  13. Morawetz, David, 1977. "Income Distribution and Self-Rated Happiness: Some Empirical Evidence," Economic Journal, Royal Economic Society, vol. 87(347), pages 511-22, September.
  14. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February.
  15. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  16. Di Tella, R. & MacCulloch, R., 1996. "An Emprirical Study of Unemployment Benefit Preferences," Economics Series Working Papers 99179, University of Oxford, Department of Economics.
  17. Alvarez, F. & Jermann, U.J., 2000. "Using Asset Prices to Measure the Cost of Business Cycles," Weiss Center Working Papers 00-1, Wharton School - Weiss Center for International Financial Research.
  18. Kahneman, Daniel & Thaler, Richard H, 1991. "Economic Analysis and the Psychology of Utility: Applications to Compensation Policy," American Economic Review, American Economic Association, vol. 81(2), pages 341-46, May.
  19. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
  20. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  21. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  22. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 7-50, 04.
  23. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  24. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  25. Rafael Di Tella & Robert MacCulloch, 2005. "Partisan Social Happiness," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 367-393.
  26. Andrew Atkeson & Christopher Phelan, 1994. "Reconsidering the Costs of Business Cycles with Incomplete Markets," NBER Working Papers 4719, National Bureau of Economic Research, Inc.
  27. Yew-Kwang Ng, 1996. "Happiness surveys: Some comparability issues and an exploratory survey based on just perceivable increments," Social Indicators Research, Springer, vol. 38(1), pages 1-27, May.
  28. Craig Fox & Daniel Kahneman, 1992. "Correlations, causes and heuristics in surveys of life satisfaction," Social Indicators Research, Springer, vol. 27(3), pages 221-234, November.
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