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Are Relative-Income Effects Constant Across the Well-Being Distribution?

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  • Santiago Budria

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Abstract

This paper challenges the common assumption made by economists to date that income comparisons are similarly important in different segments of the subjective well-being (SWB) distribution. The results, based on the 2000–2007 waves of the German SOEP and on a Generalized Ordered Probit for panel data, show that relative income, as measured either by the mean income of the reference group or the individual ordinal ranking within the group, exerts a differential effect across SWB levels. Such divergence is assessed by means of the tradeoff ratio between household income and the relative income variables. The results show that a low rank and falling below the average income in one’s group are significant determinants of low SWB but largely irrelevant when accounting for high SWB. The fact that conditionally unhappy individuals are more sensitive to comparisons, particularly if they are unfavorable, is consistent with earlier laboratory studies in the field of psychology. Copyright Springer Science+Business Media B.V. 2013

Suggested Citation

  • Santiago Budria, 2013. "Are Relative-Income Effects Constant Across the Well-Being Distribution?," Journal of Happiness Studies, Springer, vol. 14(4), pages 1379-1408, August.
  • Handle: RePEc:spr:jhappi:v:14:y:2013:i:4:p:1379-1408
    DOI: 10.1007/s10902-012-9384-9
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    References listed on IDEAS

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    Cited by:

    1. Kesavayuth, Dusanee & Rosenman, Robert E. & Zikos, Vasileios, 2015. "Personality and health satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 54(C), pages 64-73.
    2. Dusanee Kesavayuth & Robert E. Rosenman & Vasileios Zikos, 2016. "Retirement, Personality, And Well-Being," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 733-750, April.

    More about this item

    Keywords

    Subjective well-being; Comparison income; Income rank; Generalized ordered response model;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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