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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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  1. 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.
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  9. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  10. 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.
  11. 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.
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  13. Longford, Nicholas Tibor & Nicodemo, Catia, 2009. "A sensitivity analysis of poverty definitions," IRISS Working Paper Series 2009-15, IRISS at CEPS/INSTEAD.
  14. Paolo Verme & Rima Izem, 2008. "Relative Deprivation with Imperfect Information," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-9.
  15. repec:ebl:ecbull:v:4:y:2008:i:7:p:1-9 is not listed on IDEAS
  16. 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.
  17. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  18. Conway, Brian, 2009. "Individual-Level Determinants of Religious Practice and Belief in Catholic Europe," IRISS Working Paper Series 2009-14, IRISS at CEPS/INSTEAD.
  19. 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.
  20. Liégeois, Philippe & Berger, Frédéric & Islam, Nizamul & Wagener, Raymond, 2009. "Cross-validating administrative and survey datasets through microsimulation and the assessment of a tax reform in Luxembourg," IRISS Working Paper Series 2009-16, IRISS at CEPS/INSTEAD.
  21. Van Kerm, Philippe, 2009. "Generalized measures of wage differentials," ISER Working Paper Series 2009-26, Institute for Social and Economic Research.
  22. Paolo Verme, 2010. "Relative labour deprivation and urban migration in Turkey," Journal of Economic Inequality, Springer, vol. 8(4), pages 391-408, December.
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Cited by:
  1. Verme, Paolo, 2013. "The relative income and relative deprivation hypotheses : a review of the empirical literature," Policy Research Working Paper Series 6606, The World Bank.

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