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Does Happiness Adapt to Increase in Income? Evidence from Pakistan Socio-economic Survey (1998-2001)

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  • Hamid Hasan

    (Assistant Professor of Economics, Department of Economics, School of Business, King Faisal University, Kingdom of Saudi Arabia)

Abstract

The fact that happiness does not increase as income increases over time [the Easterlin Paradox (1974)] has puzzled a number of scholars for a number of decades. The latest research on this topic [Easterlin, et al. (2010)] concludes that happiness increases with an increment in income in the short term but it adapts to this income increment in the long term. The objective of this research is to test whether happiness adapts to income increase in the short term using two-period panel Pakistan Socio-Economic Survey [PSES (1998-2001)]. The paper makes use of a unique question on happiness asked in PSES to resolve two issues simultaneously: unavailability of happiness question in period 1 and potential inconsistency of responses to general happiness question. The paper applies Random Effect Ordered Probit model to investigate the hedonic adaptation effect using various formulations used in the happiness economics literature. The results show positive and statistically significant impact of income change on happiness with weak evidence of adaptation to income since it is statistically insignificant. The result is consistent with the studies that show no adaptation during a short period. Among several reasons for hedonic adaptation, falling positive emotions and rising aspirations are discussed along with causes of happiness and policy implications. The significance of the present research lies in the fact that it is the first study in Pakistan that tests the hedonic adaptation to income and hence contributes to the evidence on happiness dynamics.

Suggested Citation

  • Hamid Hasan, 2016. "Does Happiness Adapt to Increase in Income? Evidence from Pakistan Socio-economic Survey (1998-2001)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(2), pages 113-122.
  • Handle: RePEc:pid:journl:v:55:y:2016:i:2:p:113-122
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    References listed on IDEAS

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    1. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2003. "The Macroeconomics of Happiness," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 809-827, November.
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    More about this item

    Keywords

    Happiness; Adaptation; Income; Panel Ordered Probit Model;

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D60 - Microeconomics - - Welfare Economics - - - General
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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