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Happiness, Deprivation and the Alter Ego

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  • Verme, Paolo

    (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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Bibliographic Info

Paper provided by IRISS at CEPS/INSTEAD in its series IRISS Working Paper Series with number 2009-18.

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Length: 35 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:irs:iriswp:2009-18

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Keywords: Happiness ; Deprivation ; Inequality;

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References

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  1. 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.
  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. Van Kerm, Philippe, 2009. "Generalized measures of wage differentials," IRISS Working Paper Series 2009-08, IRISS at CEPS/INSTEAD.
  4. Longford, Nicholas Tibor & Nicodemo, Catia, 2009. "A sensitivity analysis of poverty definitions," IRISS Working Paper Series 2009-15, IRISS at CEPS/INSTEAD.
  5. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  6. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  7. 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.
  8. Silber, Jacques & Verme, Paolo, 2009. "Distributional change, reference groups and the measurement of relative deprivation," IRISS Working Paper Series 2009-13, IRISS at CEPS/INSTEAD.
  9. Paolo Verme & Rima Izem, 2008. "Relative Deprivation with Imperfect Information," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-9.
  10. Paolo Verme, 2010. "Relative labour deprivation and urban migration in Turkey," Journal of Economic Inequality, Springer, vol. 8(4), pages 391-408, December.
  11. Etienne Farvaque & Alexander Mihailov, 2008. "Intergenerational Transmission of Inflation Aversion: Theory and Evidence," Economics & Management Discussion Papers em-dp2008-71, Henley Business School, Reading University.
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  13. Bargain, Olivier & Doorley, Karina, 2009. "Caught in the Trap? The Disincentive Effect of Social Assistance," IRISS Working Paper Series 2009-10, IRISS at CEPS/INSTEAD.
  14. 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.
  15. Verme Paolo, 2007. "A Structural Analysis of Growth and Poverty in the Short-Term," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200705, University of Turin.
  16. 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.
  17. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  18. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  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. repec:ese:iserwp:2009-26 is not listed on IDEAS
  21. 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.
  22. 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.
  23. Strawinski, Pawel, 2009. "External Return to Education in Europe," IRISS Working Paper Series 2009-09, IRISS at CEPS/INSTEAD.
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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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