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The Macroeconomics of Happiness

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Author Info

  • 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

Contact details of provider:
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. 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.
  2. Lucas, Robert E., 1981. "Discussion of : Stanley Fischer, "towards an understanding of the costs of inflation: II"," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 43-52, January.
  3. Robert J. Shiller, 1996. "Why Do People Dislike Inflation?," Cowles Foundation Discussion Papers 1115, Cowles Foundation for Research in Economics, Yale University.
  4. DiTella, Rafael & MacCulloch, Robert, 2001. "The determination of unemployment benefits," ZEI Working Papers B 04-2001, ZEI - Center for European Integration Studies, University of Bonn.
  5. Bruno S. Frey & Alois Stutzer, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series 246, CESifo Group Munich.
  6. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. 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.
  8. Morawetz, David, 1977. "Income Distribution and Self-Rated Happiness: Some Empirical Evidence," Economic Journal, Royal Economic Society, vol. 87(347), pages 511-22, September.
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  10. Yew-Kwang, Ng, 1997. "A case for Happiness, Cardinalism, and Interpersonal Comparability," Departmental Working Papers _081, Chinese University of Hong Kong, Department of Economics.
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  12. 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.
  13. 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.
  14. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  15. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  16. Rafael Di Tella & Robert MacCulloch, 2005. "Partisan Social Happiness," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 367-393.
  17. Erzo F.P. Luttmer, 1999. "Group Loyalty and the Taste for Redistribution," JCPR Working Papers 61, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  19. 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.
  20. Andrew Atkeson & Christopher Phelan, 1994. "Reconsidering the Costs of Business Cycles with Incomplete Markets," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 187-218 National Bureau of Economic Research, Inc.
  21. Konow, James & Earley, Joseph, 2007. "The Hedonistic Paradox: Is Homo Economicus Happier?," MPRA Paper 2728, University Library of Munich, Germany.
  22. Di Tella, R. & MacCulloch, R., 1996. "An Emprirical Study of Unemployment Benefit Preferences," Economics Series Working Papers 99179, University of Oxford, Department of Economics.
  23. Frey, Bruno S & Schneider, Friedrich, 1978. "An Empirical Study of Politico-Economic Interaction in the United States," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 174-83, May.
  24. Blanchflower, David G, 1991. "Fear, Unemployment and Pay Flexibility," Economic Journal, Royal Economic Society, vol. 101(406), pages 483-96, May.
  25. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  26. 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.
  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. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  29. 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.
  30. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
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