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Income and happiness: Evidence, explanations and economic implications

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Author Info

  • Andrew E. Clark

    (IZA - Institute for the Study of Labor - IZA, 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)

  • Paul Frijters

    (School of Economics and Finance - Queensland University of Technology)

  • Michael A. Shields

    (Departement of Economics - University of Melbourne - University of Melbourne)

Abstract

There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00590436.

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Date of creation: Sep 2006
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Handle: RePEc:hal:wpaper:halshs-00590436

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Related research

Keywords: income ; happiness ; social comparisons ; habituation ; economic policy;

References

References listed on IDEAS
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Cited by:
  1. Irena Grosfeld & Claudia Senik, 2008. "The Emerging Aversion to Inequality: Evidence from Poland 1992-2005," William Davidson Institute Working Papers Series wp919, William Davidson Institute at the University of Michigan.
  2. Andrew E. Clark, 2006. "A note on unhappiness and unemployment duration," Working Papers halshs-00590444, HAL.
  3. Claudia Senik & Andrew E. Clark, 2007. "La croissance rend-elle heureux ? La réponse des données subjectives," Working Papers halshs-00588314, HAL.
  4. Andrew E. Clark, 2006. "Born to be mild? Cohort effects don't explain why well-being is U-shaped in age," Working Papers halshs-00590307, HAL.

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