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Direct evidence on income comparisons and their welfare effects

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  • Claudia Senik

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, UP4 - Université Paris 4, Paris-Sorbonne - Université Paris IV - Paris Sorbonne - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

Abstract

This paper provides direct evidence that comparisons exert a significant effect on subjective well-being. It also evaluates the relative importance of different types of benchmarks. Internal comparisons to one's own past living standard outweigh any other comparison benchmarks. Local comparisons (to one's parents, former colleagues or high school mates) are more powerful than self-ranking in the social ladder. The impact of comparisons is asymmetric: under-performing one's benchmark always has a greater welfare effect than out-performing it (in absolute value). Comparisons which reduce satisfaction also increase the demand for income redistribution, but there, the relative impact of subjective ranking is preponderant.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00588023.

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Date of creation: Sep 2008
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Handle: RePEc:hal:psewpa:halshs-00588023

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Keywords: subjective well-being ; income comparisons ; demand for income redistribution ; internal and external benchmarks ; transition;

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