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Income Rank and Upward Comparisons

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Author Info

  • Boyce, Christopher J.

    (Department of Psychology, University of Warwick)

  • Brown, Gordon D.A.

    (Department of Psychology, University of Warwick)

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    Abstract

    Many studies have argued that relative income predicts individual well-being. More recently, it has been suggested that the relative rank of an individual’s income, rather than how that income compares to a mean or reference income, is important. Here the relative rank hypothesis is examined along with the additional hypothesis that individuals compare their incomes predominantly with those of slightly higher earners. A study of over 12,000 British adults using the British Household Panel Survey (a) confirms the importance of rank and (b) finds evidence that individuals compare upwards and to those most similar. This paper appears to be the first to show in fixed effect well-being equations that the influence of rank is more important than the influence of relative pay.

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_883.pdf
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    Bibliographic Info

    Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 883.

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    Length: 30 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:wrk:warwec:883

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    Web page: http://www2.warwick.ac.uk/fac/soc/economics/
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    Related research

    Keywords: Rank ; social comparison ; life satisfaction ; relative income ; BHPS;

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    References

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    1. Falk, Armin & Knell, Markus, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," CEPR Discussion Papers 4459, C.E.P.R. Discussion Papers.
    2. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
    3. Oswald, Andrew J. & Powdthavee, Nattavudh, 2007. "Death, Happiness, and the Calculation of Compensatory Damages," The Warwick Economics Research Paper Series (TWERPS) 827, University of Warwick, Department of Economics.
    4. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 963-1002, August.
    5. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
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    Cited by:
    1. Felix R., FitzRoy & Michael, Nolan & Max F., Steinhardt, 2013. "Age, Life-satisfaction, and Relative Income – Insights from the UK and Germany," SIRE Discussion Papers 2013-51, Scottish Institute for Research in Economics (SIRE).

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