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A Test for the Convexity of Human Well-Being over the Life Cycle: Longitudinal Evidence from a 20-Year Panel

  • Landeghem Bert van

    (ROA rm)

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    (Forthcoming in Journal of Economic Behavior and Organization, DOI 10.1016/j.jebo.2011.08.001)A huge cross-section literature, written by economists and others, argues thathuman well-being is U-shaped through the life cycle. In many cases this U-shapeis robust (with as a well-known exception the pattern evident in some U.S. data setsif few independent variables are included). However, a lively debate is currentlyongoing about its true shape. This paper discusses the identication problem ofage, time, and cohort effects. It suggests a simple way to interpret estimates of agevariables in a first-difference framework. Building on McKenzie’s (2006) methodology,the paper shows that no extra assumptions are needed in order to identify the secondderivative of well-being to age, i.e. to estimate the changes in changes in the actual ageand well-being relationship. An empirical application, using a large German data set,finds that human well-being is convex in age until after midlife, which is approximatelyconsistent with a U-shaped pattern through life, and not with the concave relationshipsometimes found in U.S. studies.

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    Paper provided by Maastricht University, Research Centre for Education and the Labour Market (ROA) in its series ROA Research Memorandum with number 008.

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    Date of creation: 2011
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    Handle: RePEc:unm:umaror:2011008
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