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Personality, well-being and the marginal utility of income: What can we learn from random coefficient models?

  • Schurer, S.
  • Yong, J.

Fixed effects models are the gold standard in empirical well-being research, however, their applicability is limited to controlling for intercept heterogeneity and identifying effects of timevarying variables. This paper investigates the usefulness of random coecient models in con- trolling for heterogeneity in well-being and the marginal utility of income, and explores whether these forms of heterogeneity depend on the Big-Five personality traits. Using unique Australian longitudinal data that have personality measures available in two time periods we show that a Mundlak-adjusted random coeffcient model yields almost identical results as the mixed effects model, making it a powerful modelling alternative when interest lies in multiple forms of heterogeneity. Big-Five personality explains 10 percent of the variation in intercept heterogeneity and 6-7 percent of the variation in the marginal utility of income. For women, we suggest that the marginal utility of income is significantly linked to personality, implying important gender-differences in the expected effectiveness of financial incentives to influence behaviour.

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Paper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 12/01.

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Date of creation: Jan 2012
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Handle: RePEc:yor:hectdg:12/01
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