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Happiness, deprivation and the alter ego

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  • Paolo Verme

    () (University of Torino)

Abstract

The paper focuses on satisfaction with income and proposes a utility model built on two value systems, the `Ego' system - described as one own income assessment relatively to one own past and future income - and the `Alter' system - described as one own income assessment relatively to a reference group. We show how the union of these two value systems and the use of relative deprivation measures can lead to a model able to accommodate a wide range of theories on income and happiness. The model is then tested using the Consortium of Household Panels for European Socio-economic Research (CHER), a collection of 19 panel surveys including over 1.2 m. individual observations. We find absolute income to sit at the intersection between the `Ego' and the `Alter' systems and to play the most prominent role in explaining satisfaction with income. Relative deprivation is also found to be important for understanding the income-happiness nexus while we find income expectations to be less relevant once we control for absolute income. Overall, the `Alter' system (the cross-section comparison with others) seems to be more relevant in valuing income than the `Ego' system (the longitudinal self-comparison of income).

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2010-155.pdf
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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 155.

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Length: 37 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2010-155

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Keywords: happiness; deprivation; inequality.;

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References

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  1. Paolo Verme, 2010. "Relative labour deprivation and urban migration in Turkey," Journal of Economic Inequality, Springer, vol. 8(4), pages 391-408, December.
  2. Conway, Brian, 2009. "Individual-Level Determinants of Religious Practice and Belief in Catholic Europe," IRISS Working Paper Series 2009-14, IRISS at CEPS/INSTEAD.
  3. Jacques Silber & Paolo Verme, 2009. "Distributional change, reference groups and the measurement of relative deprivation," Working Papers 136, ECINEQ, Society for the Study of Economic Inequality.
  4. Bargain, Olivier & Doorley, Karina, 2009. "Caught in the Trap? The Disincentive Effect of Social Assistance," IZA Discussion Papers 4291, Institute for the Study of Labor (IZA).
  5. 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.
  6. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  7. Choe, Chung & Chrite, E. LaBrent, 2009. "Internal Migration of Blacks in South Africa: Self-selection and Brain Drain," IRISS Working Paper Series 2009-06, IRISS at CEPS/INSTEAD.
  8. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  9. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers.
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  12. Liégeois, Philippe & Berger, Frederic & Islam, Nizamul & Wagener, Raymond, 2010. "Cross-validating administrative and survey datasets through microsimulation and the assessment of a tax reform in Luxembourg," EUROMOD Working Papers EM1/10, EUROMOD at the Institute for Social and Economic Research.
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  14. Van Kerm, Philippe, 2009. "Generalized measures of wage differentials," IRISS Working Paper Series 2009-08, IRISS at CEPS/INSTEAD.
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  16. repec:ebl:ecbull:v:4:y:2008:i:7:p:1-9 is not listed on IDEAS
  17. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  18. Okamura, Kazuaki & Islam, Nizamul, 2009. "State Dependence in Labour Force Participation of Married Women in Japan," IRISS Working Paper Series 2009-17, IRISS at CEPS/INSTEAD.
  19. Strawinski, Pawel, 2009. "External Return to Education in Europe," IRISS Working Paper Series 2009-09, IRISS at CEPS/INSTEAD.
  20. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  21. Raileanu Szeles, Monica & Fusco, Alessio, 2009. "Item response theory and the measurement of deprivation: Evidence from PSELL-3," IRISS Working Paper Series 2009-05, IRISS at CEPS/INSTEAD.
  22. Choe, Chung, 2009. "Determinants of Labor Market Outcomes of Disabled Men Before and After the Americans with Disabilities Act of 1990," IRISS Working Paper Series 2009-07, IRISS at CEPS/INSTEAD.
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