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Does the Risk of Poverty Reduce Happiness?

Author

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  • Stefano A. Caria
  • Paolo Falco

Abstract

We investigate the unexplored link between the risk of poverty and happiness in the context of a developing country. Using unique longitudinal data, we estimate workers’ vulnerability to income poverty and find a strong negative relationship between vulnerability and life satisfaction, over and above the positive income effect commonly documented in the literature. The result is robust and cannot be reduced to the effect of two-sided uncertainty. A matched behavioral experiment shows that respondents are significantly loss averse. We conclude that downside risk is an important determinant of happiness and of economic decisions under uncertainty. Policies that mitigate downward risk may thus have direct impacts on both well-being and efficiency.

Suggested Citation

  • Stefano A. Caria & Paolo Falco, 2018. "Does the Risk of Poverty Reduce Happiness?," Economic Development and Cultural Change, University of Chicago Press, vol. 67(1), pages 1-28.
    • Handle: RePEc:ucp:ecdecc:doi:10.1086/697556
    DOI: 10.1086/697556
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    Cited by:

    1. Godoy, Ricardo & Bauchet, Jonathan & Behrman, Jere R. & Huanca, Tomás & Leonard, William R. & Reyes-García, Victoria & Rosinger, Asher & Tanner, Susan & Undurraga, Eduardo A. & Zycherman, Ariela, 2024. "Changes in adult well-being and economic inequalities: An exploratory observational longitudinal study (2002–2010) of micro-level trends among Tsimane’, a small-scale rural society of Indigenous Peopl," World Development, Elsevier, vol. 176(C).
    2. Hai-Anh H. Dang & Kseniya Abanokova & Michael M. Lokshin, 2023. "Life Satisfaction, Subjective Wealth, and Adaptation to Vulnerability in the Russian Federation during 2002-2019," Hacienda Pública Española / Review of Public Economics, IEF, vol. 247(4), pages 125-153, December.
    3. Laura V. Zimmermann, 2024. "Why Guarantee Employment? Evidence from a Large Indian Public-Works Program," Economic Development and Cultural Change, University of Chicago Press, vol. 72(4), pages 2031-2067.
    4. William Seitz & D La Torre, 2014. "Modelling Investment Optimization on Smallholder Farms through Multi-criteria Decision Approaches: An Example from Ethiopia," CSAE Working Paper Series 2014-06, Centre for the Study of African Economies, University of Oxford.
    5. Dang, Hai-Anh H. & Abanokova, Kseniya & Lokshin, Michael M., 2020. "Life Satisfaction, Subjective Wealth, and Adaptation to Vulnerability in the Russian Federation during 2002-2017," GLO Discussion Paper Series 492, Global Labor Organization (GLO).
    6. Kourtit, Karima & Nijkamp, Peter & Türk, Umut & Wahlstrom, Mia, 2022. "City love and place quality assessment of liveable and loveable neighbourhoods in Rotterdam," Land Use Policy, Elsevier, vol. 119(C).
    7. Chunyang Luo & Hongmei Li & Lisha Song, 2024. "Impact Analysis of Regional Smart Development on the Risk of Poverty among the Elderly," Sustainability, MDPI, vol. 16(7), pages 1-17, April.

    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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