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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 Paris - École normale supérieure - Paris - 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
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00590436
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