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Income and happiness: Evidence, explanations and economic implications

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  • Andrew E. Clark

    (IZA - Institute for the Study of Labor - IZA, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Paul Frijters

    (School of Economics and Finance - QUT - Queensland University of Technology [Brisbane])

  • Michael A. Shields

    (Departement of Economics [Melbourne] - Faculty of Business and Economics [Melbourne] - University of Melbourne)

Abstract

There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues.

Suggested Citation

  • Andrew E. Clark & Paul Frijters & Michael A. Shields, 2006. "Income and happiness: Evidence, explanations and economic implications," PSE Working Papers halshs-00590436, HAL.
  • Handle: RePEc:hal:psewpa:halshs-00590436
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    14. Caporale, Guglielmo Maria & Georgellis, Yannis & Tsitsianis, Nicholas & Yin, Ya Ping, 2009. "Income and happiness across Europe: Do reference values matter?," Journal of Economic Psychology, Elsevier, vol. 30(1), pages 42-51, February.
    15. Andrew E. Clark, 2008. "Happiness, habits and high rank: Comparisons in economic and social life," PSE Working Papers halshs-00586049, HAL.
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