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Well-being Inequality and Reference Groups: An Agenda for New Research

  • van Praag, Bernard M. S.

    ()

    (University of Amsterdam)

In this paper it is argued that subjective well-being of the individual depends on two types of variables. The first type consists of characteristics of the individual himself, such as age, health, income, etc. The second type of variables consists of the characteristics of the individuals belonging to his reference group. The vast literature about happiness, quality of life, and well-being informs us extensively about the effects of objective variables. How the second type affects well-being is much less investigated. It is argued that the concept of well-being inequality cannot be properly defined without taking the referencing process into account. The reference effect depends on how frequently individuals compare with others and on the degree of social transparency in society. We attempt to give a structural embedding of the idea of reference groups in SWB-models. In this paper we employ the reference-extended model for incorporating in happiness studies the concept of inequality in happiness or SWB. Finally, we plead for an extension of the present happiness paradigm by setting up a new additional agenda for empirical research in order to get quantified knowledge about the referencing process. As a first step we suggest a new question module to be included in new survey questionnaires.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4727.

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Length: 33 pages
Date of creation: Jan 2010
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2011, 9 (1), 111-127
Handle: RePEc:iza:izadps:dp4727
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  1. Wunder, Christoph & Wiencierz, Andrea & Schwarze, Johannes & Küchenhoff, Helmut & Kleyer, Sara & Bleninger, Philipp, 2009. "Well-Being over the Life Span: Semiparametric Evidence from British and German Longitudinal Data," IZA Discussion Papers 4155, Institute for the Study of Labor (IZA).
  2. Bernard Praag, 2011. "Well-being inequality and reference groups: an agenda for new research," Journal of Economic Inequality, Springer, vol. 9(1), pages 111-127, March.
  3. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  4. Ada Ferrer-i-Carbonell & Bernard M. S. van Praag, 2003. "Income Satisfaction Inequality and Its Causes," Discussion Papers of DIW Berlin 367, DIW Berlin, German Institute for Economic Research.
  5. Senik, Claudia, 2009. "Direct evidence on income comparisons and their welfare effects," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 408-424, October.
  6. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  7. Stutzer, Alois, 2004. "The role of income aspirations in individual happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 89-109, May.
  8. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  9. Easterlin, Richard A., 2006. "Life cycle happiness and its sources: Intersections of psychology, economics, and demography," Journal of Economic Psychology, Elsevier, vol. 27(4), pages 463-482, August.
  10. Carol Graham & Andrew Felton, 2006. "Inequality and happiness: Insights from Latin America," Journal of Economic Inequality, Springer, vol. 4(1), pages 107-122, April.
  11. AndrewE. Clark & Claudia Senik, 2010. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," Economic Journal, Royal Economic Society, vol. 120(544), pages 573-594, 05.
  12. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  13. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
  14. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  15. Kapteyn, Arie & Van Praag, Bernard M. S. & Van Herwaarden, Floor G., 1978. "Individual welfare functions and social reference spaces," Economics Letters, Elsevier, vol. 1(2), pages 173-177.
  16. repec:ner:tilbur:urn:nbn:nl:ui:12-361901 is not listed on IDEAS
  17. Van Praag, Bernard M.S., 1977. "The perception of welfare inequality," European Economic Review, Elsevier, vol. 10(2), pages 189-207.
  18. Hagenaars, Aldi J M & van Praag, Bernard M S, 1985. "A Synthesis of Poverty Line Definitions," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(2), pages 139-54, June.
  19. Christoph Wunder & Andrea Wiencierz & Johannes Schwarze & Helmut Küchenhoff & Sara Kleyer & Philipp Bleninger, 2009. "Well-Being over the Life Span: Semiparametric Evidence from British and German Longitudinal Data," SOEPpapers on Multidisciplinary Panel Data Research 179, DIW Berlin, The German Socio-Economic Panel (SOEP).
  20. Andrew E. Clark & Claudia Senik, 2009. "Who compares to whom? The anatomy of income comparisons in Europe," PSE Working Papers halshs-00586036, HAL.
  21. Christoph Wunder & Andrea Wiencierz & Johannes Schwarze & Helmut Küchenhoff & Sara Kleyer & Philipp Bleninger, 2009. "Well-Being over the Life Span: Semiparametric Evidence from British and German Longitudinal Data," Discussion Papers of DIW Berlin 889, DIW Berlin, German Institute for Economic Research.
  22. repec:ner:tilbur:urn:nbn:nl:ui:12-361904 is not listed on IDEAS
  23. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2099-2123, August.
  24. Dolan, Paul & Peasgood, Tessa & White, Mathew, 2008. "Do we really know what makes us happy A review of the economic literature on the factors associated with subjective well-being," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 94-122, February.
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