Our empirical analysis on the determinants of happiness on more than 100,000 individuals from representative samples in 82 world countries supports the hypothesis that the time spent for relationships has a significant and positive impact on happiness. This basic nexus helps to understand new unexplored paths in the so called "happiness-income paradox". To illustrate them we show that income has two main effects on happiness. The first is a positive relative income effect which depends on individual's ranking within domestic income deciles. The second is determined by the relationship between income and relational goods. In principle, more productive individuals may substitute (if the income effect prevails over the substitution effect) working hours with the nonworking time made free for enjoying relationships, when they have strong preferences for the latter. The problem is that these individuals tend to have ties with their income class peers who share with them a high opportunity cost for the time spent for relationships. Hence, a coordination failure may reduce the joint investment in relational goods (local public goods which need to be co-produced in order to be enjoyed together) and, through this effect, individuals in the highest income deciles may end up with poorer relational goods. The impact of income on happiness through this channel is therefore expected to be negative. Keywords: happiness, relative income, relational goods, bivariate model, mixture model. JEL:D60, I31, 030
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Clark, Andrew E & Oswald, Andrew J, 1994.
"Unhappiness and Unemployment,"
Economic Journal,
Royal Economic Society, vol. 104(424), pages 648-59, May.
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