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Income and Happiness: New Results from Generalized Threshold and Sequential Models

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  • Boes, Stefan

    () (University of Lucerne)

  • Winkelmann, Rainer

    () (University of Zurich)

Abstract

Empirical studies on the relationship between income and happiness commonly use standard ordered response models, the most well-known representatives being the ordered logit and the ordered probit. However, these models restrict the marginal probability effects by design, and therefore limit the analysis of distributional aspects of a change in income, that is, the study of whether the income effect depend on a person's happiness. In this paper we pinpoint the shortcomings of standard models and propose two alternatives, namely generalized threshold and sequential models. With data of two waves of the German Socio- Economic Panel, 1984 and 1997, we show that the more general models yield different marginal probability effects than standard models.

Suggested Citation

  • Boes, Stefan & Winkelmann, Rainer, 2004. "Income and Happiness: New Results from Generalized Threshold and Sequential Models," IZA Discussion Papers 1175, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp1175
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    Cited by:

    1. Mentzakis, Emmanouil & Moro, Mirko, 2009. "The poor, the rich and the happy: Exploring the link between income and subjective well-being," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(1), pages 147-158, January.
    2. Levinson, Arik, 2012. "Valuing public goods using happiness data: The case of air quality," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 869-880.
    3. Luechinger, Simon & Stutzer, Alois & Winkelmann, Rainer, 2006. "The Happiness Gains from Sorting and Matching in the Labor Market," IZA Discussion Papers 2019, Institute for the Study of Labor (IZA).
    4. Verena Dill & Uwe Jirjahn, 2011. "Ethnic Residential Segregation and Immigrants' Perceptions of Discrimination in West Germany," Research Papers in Economics 2011-10, University of Trier, Department of Economics.
    5. Dusanee Kesavayuth & Robert Rosenman & Vasileios Zikos, 2013. "Does Personality Affect how People Perceive their Health?," Working Papers 2013-13, School of Economic Sciences, Washington State University.
    6. Stefan Boes, 2013. "Nonparametric analysis of treatment effects in ordered response models," Empirical Economics, Springer, vol. 44(1), pages 81-109, February.
    7. Bruno Amable, 2009. "The Differentiation of Social Demands in Europe. The Social Basis of the European Models of Capitalism," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 91(3), pages 391-426, May.
    8. Simon Loertscher & Yves Schneider, 2005. "Switching Costs, Firm Size, and Market Structure," SOI - Working Papers 0508, Socioeconomic Institute - University of Zurich.
    9. Helga Fehr-Duda & Adrian Bruhin & Thomas Epper & Renate Schubert, 2010. "Rationality on the rise: Why relative risk aversion increases with stake size," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 147-180, April.
    10. Inmaculada García & José Molina & María Navarro, 2007. "How Satisfied are Spouses with their Leisure Time? Evidence from Europe," Journal of Family and Economic Issues, Springer, vol. 28(4), pages 546-565, December.
    11. Natália Barbosa & Ana Paula Faria & Vasco Eiriz, 2014. "Industry- and firm-specific factors of innovation novelty," Industrial and Corporate Change, Oxford University Press, vol. 23(3), pages 865-902.
    12. Halbheer, Daniel & Fehr, Ernst & Goette, Lorenz & Schmutzler, Armin, 2009. "Self-reinforcing market dominance," Games and Economic Behavior, Elsevier, vol. 67(2), pages 481-502, November.
    13. Molina, José Alberto & Navarro Paniagua, Maria & Walker, Ian, 2007. "Mums and Their Sons, Dads and Their Daughters: Panel Data Evidence of Interdependent Marginal Utilities across 14 EU Countries," IZA Discussion Papers 2734, Institute for the Study of Labor (IZA).
    14. Aekapol Chongvilaivan & Nattavudh Powdthavee, 2014. "Do Different Work Characteristics Have Different Distributional Impacts on Job Satisfaction? A Study of Slope Heterogeneity in Workers’ Well-Being," British Journal of Industrial Relations, London School of Economics, vol. 52(3), pages 426-444, September.
    15. Uwe Jirjahn & Erik Poutsma, 2013. "The Use of Performance Appraisal Systems: Evidence from Dutch Establishment Data," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 52(4), pages 801-828, October.
    16. William H. Greene & David A. Hensher, 2008. "Modeling Ordered Choices: A Primer and Recent Developments," Working Papers 08-26, New York University, Leonard N. Stern School of Business, Department of Economics.
    17. Chongvilaivan, Aekapol & Powdthavee, Nattavudh, 2011. "And I Will Try to Fix You: A Study of Heterogeneity in Job Satisfaction with Implications for Flexible Employment Contracts," IZA Discussion Papers 5868, Institute for the Study of Labor (IZA).
    18. Paul Downward & Simona Rasciute, 2011. "Does sport make you happy? An analysis of the well-being derived from sports participation," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(3), pages 331-348.
    19. Ross, Kara L. & Amanor-Boadu, Vincent, 2010. "They Say That They Are Healthy, But Are They? Health Perceptions In The U.S," 115th Joint EAAE/AAEA Seminar, September 15-17, 2010, Freising-Weihenstephan, Germany 116438, European Association of Agricultural Economists;Agricultural and Applied Economics Association.
    20. Stefan Boes & Rainer Winkelmann, 2006. "Ordered response models," AStA Advances in Statistical Analysis, Springer;German Statistical Society, vol. 90(1), pages 167-181, March.
    21. Jose Alberto Molina & Maria Navarro & Ian Walker, 2007. "Mums and their sons; Dads and their daughters: Panel Data Evidence of Parental Altruism across 14 EU Countries," Working Papers 200721, Geary Institute, University College Dublin.
    22. Baba, Naohiko, 2009. "Increased presence of foreign investors and dividend policy of Japanese firms," Pacific-Basin Finance Journal, Elsevier, vol. 17(2), pages 163-174, April.
    23. Labeaga, José M. & Molina, José Alberto & Navarro Paniagua, Maria, 2007. "Income Satisfaction and Deprivation in Spain," IZA Discussion Papers 2702, Institute for the Study of Labor (IZA).
    24. Hild-Marte Bjørnsen, 2005. "Living conditions and subjective well-being of farmers - An ordered response analysis of regional differences and changes over time," ERSA conference papers ersa05p95, European Regional Science Association.

    More about this item

    Keywords

    subjective well-being; ordered response models; marginal effects;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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