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Happiness, Deprivation and the Alter Ego

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  • Verme, Paolo

    (University of Torino)

Abstract

The paper focuses on satisfaction with income and proposes a utility model built on two value systems, the `Ego' system - described as one own income assessment relatively to one own past and future income - and the `Alter' system - described as one own income assessment relatively to a reference group. We show how the union of these two value systems and the use of relative deprivation measures can lead to a model able to accommodate a wide range of theories on income and happiness. The model is then tested using the Consortium of Household Panels for European Socio-economic Research (CHER), a collection of 19 panel surveys including over 1.2 m. individual observations. We find absolute income to sit at the intersection between the `Ego' and the `Alter' systems and to play the most prominent role in explaining satisfaction with income. Relative deprivation is also found to be important for understanding the income-happiness nexus while we find income expectations to be less relevant once we control for absolute income. Overall, the `Alter' system (the cross-section comparison with others) seems to be more relevant in valuing income than the `Ego' system (the longitudinal self-comparison of income).

Suggested Citation

  • Verme, Paolo, 2009. "Happiness, Deprivation and the Alter Ego," IRISS Working Paper Series 2009-18, IRISS at CEPS/INSTEAD.
  • Handle: RePEc:irs:iriswp:2009-18
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Verme, Paolo, 2013. "The relative income and relative deprivation hypotheses : a review of the empirical literature," Policy Research Working Paper Series 6606, The World Bank.
    2. Xi Chen, 2015. "Relative deprivation and individual well-being," IZA World of Labor, Institute for the Study of Labor (IZA), pages 140-140, April.
    3. Lidia Ceriani & Chiara Gigliarano, 2015. "An Inter-temporal Relative Deprivation Index," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(2), pages 427-443, November.
    4. Chen, Xi, 2015. "Status Concern and Relative Deprivation in China: Measures, Empirical Evidence, and Economic and Policy Implications," IZA Discussion Papers 9519, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Happiness ; Deprivation ; Inequality;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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