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Insights on Development from the Economics of Happiness

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  • Carol Graham

Abstract

The literature on the economics of happiness in developed economies finds discrepancies between reported measures of well-being and income measures. One is the so-called Easterlin paradox: that average happiness levels do not increase as countries grow wealthier. This article explores how that paradox--and survey research on reported well-being in general--can provide insights into the gaps between standard measures of economic development and individual assessments of welfare. Analysis of research on reported well-being in Latin America and Russia finds notable discrepancies between respondents' assessments of their own well-being and income- or expenditure-based measures. Accepting a wide margin for error in both types of measures, the article posits that taking such discrepancies into account may improve the understanding of development outcomes by providing a broader view on well-being than do income- or expenditure-based measures alone. It suggests particular areas where research on reported well-being has the most potential to contribute. Yet the article also notes that some interpretations of happiness research--psychologists' set point theory, in particular--may be quite limited in their application to development questions and cautions against the direct translation of results of happiness surveys into policy recommendations. Copyright 2005, Oxford University Press.

Suggested Citation

  • Carol Graham, 2005. "Insights on Development from the Economics of Happiness," World Bank Research Observer, World Bank Group, vol. 20(2), pages 201-231.
  • Handle: RePEc:oup:wbrobs:v:20:y:2005:i:2:p:201-231
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