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Happiness, Deprivation and the Alter Ego

  • Verme, Paolo

    (University of Torino)

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).

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Paper provided by IRISS at CEPS/INSTEAD in its series IRISS Working Paper Series with number 2009-18.

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Length: 35 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:irs:iriswp:2009-18
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  1. repec:ebl:ecbull:v:4:y:2008:i:7:p:1-9 is not listed on IDEAS
  2. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers.
  3. Olivier Bargain & Karina Doorley, 2009. "Caught in the trap? The disincentive effect of social assistance," Working Papers 200906, School of Economics, University College Dublin.
  4. Paolo Verme & Rima Izem, 2008. "Relative Deprivation with Imperfect Information," Economics Bulletin, AccessEcon, vol. 4(7), pages 1-9.
  5. Chung Choe, 2013. "Determinants of Labor Market Outcomes of Disabled Men Before and After the Americans with Disabilities Act of 1990," Korean Economic Review, Korean Economic Association, vol. 29, pages 211-233.
  6. Longford, Nicholas Tibor & Nicodemo, Catia, 2009. "A sensitivity analysis of poverty definitions," IRISS Working Paper Series 2009-15, IRISS at CEPS/INSTEAD.
  7. Paolo Verme, 2010. "A structural analysis of growth and poverty in the short-term," Journal of Developing Areas, Tennessee State University, College of Business, vol. 43(2), pages 19-39, January-M.
  8. Jacques Silber & Paolo Verme, 2009. "Distributional change, reference groups and the measurement of relative deprivation," Working Papers 136, ECINEQ, Society for the Study of Economic Inequality.
  9. Liégeois, Philippe & Berger, Frederic & Islam, Nizamul & Wagener, Raymond, 2010. "Cross-validating administrative and survey datasets through microsimulation and the assessment of a tax reform in Luxembourg," EUROMOD Working Papers EM1/10, EUROMOD at the Institute for Social and Economic Research.
  10. Etienne Farvaque & Alexander Mihailov, 2008. "Intergenerational Transmission of Inflation Aversion: Theory and Evidence," Economics & Management Discussion Papers em-dp2008-71, Henley Business School, Reading University.
  11. Conway, Brian, 2009. "Individual-Level Determinants of Religious Practice and Belief in Catholic Europe," IRISS Working Paper Series 2009-14, IRISS at CEPS/INSTEAD.
  12. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  13. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  14. Van Kerm, Philippe, 2009. "Generalized measures of wage differentials," IRISS Working Paper Series 2009-08, IRISS at CEPS/INSTEAD.
  15. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  16. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles," Post-Print halshs-00754299, HAL.
  17. Yitzhaki, Shlomo, 1979. "Relative Deprivation and the Gini Coefficient," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 321-24, May.
  18. Strawinski, Pawel, 2009. "External Return to Education in Europe," IRISS Working Paper Series 2009-09, IRISS at CEPS/INSTEAD.
  19. Paolo Verme, 2010. "Relative labour deprivation and urban migration in Turkey," Journal of Economic Inequality, Springer, vol. 8(4), pages 391-408, December.
  20. Choe, Chung & Chrite, E. LaBrent, 2009. "Internal Migration of Blacks in South Africa: Self-selection and Brain Drain," IRISS Working Paper Series 2009-06, IRISS at CEPS/INSTEAD.
  21. Okamura, Kazuaki & Islam, Nizamul, 2009. "State Dependence in Labour Force Participation of Married Women in Japan," IRISS Working Paper Series 2009-17, IRISS at CEPS/INSTEAD.
  22. Raileanu Szeles, Monica & Fusco, Alessio, 2009. "Item response theory and the measurement of deprivation: Evidence from PSELL-3," IRISS Working Paper Series 2009-05, IRISS at CEPS/INSTEAD.
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