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Direct evidence on income comparisons and their welfare effects

  • Claudia Senik

    (PSE - Paris School of Economics, UP4 - Université Paris-Sorbonne, PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC))

This paper provides direct evidence that comparisons exert a significant effect on subjective well-being. It also evaluates the relative importance of different types of benchmarks. Internal comparisons to one's own past living standard outweigh any other comparison benchmarks. Local comparisons (to one's parents, former colleagues or high school mates) are more powerful than self-ranking in the social ladder. The impact of comparisons is asymmetric: under-performing one's benchmark always has a greater welfare effect than out-performing it (in absolute value). Comparisons which reduce satisfaction also increase the demand for income redistribution, but there, the relative impact of subjective ranking is preponderant.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00588023.

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Date of creation: Sep 2008
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Handle: RePEc:hal:psewpa:halshs-00588023
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