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Measuring welfare: Latent variable models for happiness and capabilities in the presence of unobservable heterogeneity

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  • Anand, Paul
  • Krishnakumar, Jaya
  • Tran, Ngoc Bich

Abstract

The paper contributes to the operationalisation of the capabilities approach to welfare economics by developing and analyzing data on the freedoms of adults in Argentina. Specifically, it reports on the development and delivery of a survey instrument for measuring capabilities, calculates for each respondent a Nehring–Puppe type index of capabilities and examines the distribution of index scores. The main analytic part of the paper then goes on to develop a generalized linear latent and mixed model (GLLAMM) for assessing the impact of capabilities on life satisfaction, in which allowance is made for (i) unobserved heterogeneity and (ii) possible endogeneity, by introducing latent individual effects and by instrumenting capability variables using income and other socio-economic variables. Our empirical results show that empathy, self-worth, goal-autonomy, discrimination, safety and stress are statistically significant determinants of life satisfaction, in a decreasing order of importance. The paper concludes by suggesting that, if replicated, the findings have profound implications for the conceptualisation and evaluation of economic progress.

Suggested Citation

  • Anand, Paul & Krishnakumar, Jaya & Tran, Ngoc Bich, 2011. "Measuring welfare: Latent variable models for happiness and capabilities in the presence of unobservable heterogeneity," Journal of Public Economics, Elsevier, vol. 95(3), pages 205-215.
  • Handle: RePEc:eee:pubeco:v:95:y:2011:i:3:p:205-215
    DOI: 10.1016/j.jpubeco.2010.11.007
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    References listed on IDEAS

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    Cited by:

    1. Mario Biggeri & Nicolò Bellanca, 2013. "Capabilities and Human Dilemmas: How to Cope with Incompleteness," Working Papers - Economics wp2013_08.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    2. Anand, Paul & Roope, Laurence & Peichl, Andreas, 2016. "Wellbeing Evidence for the Assessment of Progress," IZA Discussion Papers 9840, Institute for the Study of Labor (IZA).
    3. Sibylle Puntscher & Janette Walde & Gottfried Tappeiner, 2016. "Do methodical traps lead to wrong development strategies for welfare? A multilevel approach considering heterogeneity across industrialized and developing countries," Working Papers 2016-01, Faculty of Economics and Statistics, University of Innsbruck.
    4. Binder, Martin & Witt, Ulrich, 2012. "A critical note on the role of the capability approach for sustainability economics," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(5), pages 721-725.
    5. Al-Janabi, Hareth & Keeley, Thomas & Mitchell, Paul & Coast, Joanna, 2013. "Can capabilities be self-reported? A think aloud study," Social Science & Medicine, Elsevier, vol. 87(C), pages 116-122.
    6. Martin Binder, 2014. "Subjective Well-Being Capabilities: Bridging the Gap Between the Capability Approach and Subjective Well-Being Research," Journal of Happiness Studies, Springer, vol. 15(5), pages 1197-1217, October.
    7. Jaya Krishnakumar & Florian Chávez-Juárez, 2016. "Estimating Capabilities with Structural Equation Models: How Well are We Doing in a ‘Real’ World?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 129(2), pages 717-737, November.
    8. Tellez, Juan & Krishnakumar, Jaya & Bungener, Martine & Le Galès, Catherine, 2016. "Capability deprivation of people with Alzheimer's disease: An empirical analysis using a national survey," Social Science & Medicine, Elsevier, vol. 151(C), pages 56-68.
    9. Yasar, Rusen, 2017. "Subjective well-being and income: A compromise between Easterlin paradox and its critiques," Economics Discussion Papers 2017-113, Kiel Institute for the World Economy (IfW).
    10. Paul Dolan & Georgios Kavetsos, 2016. "Happy Talk: Mode of Administration Effects on Subjective Well-Being," Journal of Happiness Studies, Springer, vol. 17(3), pages 1273-1291, June.
    11. Schurer, Stefanie & Yong, Jongsay, 2012. "Personality, well-being and the marginal utility of income: What can we learn from random coefficient models?," Working Paper Series 2040, Victoria University of Wellington, School of Economics and Finance.
    12. Tindara Addabbo & Maria Laura Di Tommaso & Anna Maccagnan, 2016. "Education Capability: A Focus on Gender and Science," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 128(2), pages 793-812, September.
    13. repec:eee:joecag:v:6:y:2015:i:c:p:68-78 is not listed on IDEAS
    14. Andreassen, Leif & Dagsvik, John & Di Tommaso, Maria Laura, 2013. "Measuring capabilities with random scale models. Women’s freedom of movement," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201334, University of Turin.
    15. repec:krk:eberjl:v:4:y:2016:i:4:p:153-170 is not listed on IDEAS
    16. Graham, Carol & Nikolova, Milena, 2015. "Bentham or Aristotle in the Development Process? An Empirical Investigation of Capabilities and Subjective Well-Being," World Development, Elsevier, vol. 68(C), pages 163-179.
    17. Remigiusz Gawlik & Gorm Jacobsen, 2016. "Work-life Balance Decision-making of Norwegian Students: Implications for Human Resources Management," Entrepreneurial Business and Economics Review, Centre for Strategic and International Entrepreneurship of the Faculty of Economics and International Relations at the Cracow University of Economics., vol. 4(4), pages 153-170.
    18. Krenz, Astrid, 2013. "Cross-country heterogeneity and endogeneity bias in life satisfaction estimations - Macro- and micro-level evidence for advanced, developing and transition countries," Center for European, Governance and Economic Development Research Discussion Papers 155, University of Goettingen, Department of Economics.
    19. Paul Anand & Laurence Roope, 2016. "The development and happiness of very young children," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 47(4), pages 825-851, December.
    20. Paula Rodríguez-Modroño & Lina Gálvez-Muñoz & Mauricio Matus-López & Mónica Domínguez-Serrano, 2013. "A gender analysis of children’s well-being and capabilities through time use data," Department of Economics (DEMB) 0009, University of Modena and Reggio Emilia, Department of Economics "Marco Biagi".
    21. repec:mod:depeco:0009 is not listed on IDEAS
    22. repec:eee:wdevel:v:101:y:2018:i:c:p:1-15 is not listed on IDEAS
    23. Schubert Christian & Binder Martin, 2014. "Reconciling Normative and Behavioral Economics: An Application of the “Naturalistic Approach” to the Adaptation Problem," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(2-3), pages 350-365, April.
    24. Hasan, Hamid, 2013. "Capabilities vis-a-vis Happiness: Evidence from Pakistan," MPRA Paper 44892, University Library of Munich, Germany.
    25. Andrea Vigorito, 2011. "Bibliography on the Capability Approach 2010--2011," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 12(4), pages 607-612, November.

    More about this item

    Keywords

    Capabilities; Freedoms; GLLAMM; Happiness; Instrumental variables; Multi-dimensionality; Unobserved heterogeneity;

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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