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Estimating the Causal Effects of Income on Happiness

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  • Nattavudh Powdthavee

Abstract

There is a long tradition of psychologists finding small income effects on life satisfaction (or happiness). Yet the issue of income endogeneity in life satisfaction equations has rarely been addressed. This paper aims to do just that. Instrumenting for income and allowing for unobserved heterogeneity result in an estimated income effect that is almost twice as large as the estimate in the basic specification. The results call for a reexamination on previous findings that suggest money buys little happiness, and a reevaluation on how the calculation of compensatory packages to various shocks in the individual's life events should be designed.

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  • Nattavudh Powdthavee, 2009. "Estimating the Causal Effects of Income on Happiness," Discussion Papers 09/02, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:09/02
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Guaranteed Income and Living Wages
      by Eric Crampton in Offsetting Behaviour on 2013-02-04 03:58:00
    2. Money, reputation and happiness
      by chris dillow in Stumbling and Mumbling on 2009-03-05 23:27:55
    3. Living wage trade-offs
      by chris dillow in Stumbling and Mumbling on 2013-02-03 17:57:55
    4. Tories & the minimum wage
      by ? in Stumbling and Mumbling on 2014-01-09 19:51:00

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    Cited by:

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    3. Maite Blázquez Cuesta & Santiago Budría, 2014. "Deprivation and Subjective Well-Being: Evidence from Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 655-682, December.
    4. 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.
    5. Attavanich, Witsanu, 2017. "Impact of the First-Time Car Buyer Program on the Environmental Cost of Air Pollution in Bangkok," MPRA Paper 83170, University Library of Munich, Germany.
    6. Vargas, Andrés & Roldán, Paola, 2018. "Ni muy cerca ni muy lejos: parques urbanos y bienestar subjetivo en la ciudad de Barranquilla, Colombia," Revista Lecturas de Economía, Universidad de Antioquia, CIE, issue 88, pages 183-205, January.
    7. Arik Levinson, 2013. "Happiness as a Public Policy Tool," Working Papers gueconwpa~13-13-04, Georgetown University, Department of Economics.
    8. Arik Levinson, 2013. "Happiness, Behavioral Economics, and Public Policy," NBER Working Papers 19329, National Bureau of Economic Research, Inc.
    9. Andrés Vargas & Paola Roldán, 2018. "Not too close, not too far: urban parks and subjective well-being in the city of Barranquilla, Colombia," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 88, pages 183-205, Enero - J.
    10. Haining Wang & Zhiming Cheng & Russell Smyth, 2015. "Does Consuming More Make You Happier? Evidence from Chinese Panel Data," Monash Economics Working Papers 29-15, Monash University, Department of Economics.
    11. Asadullah, M. Niaz & Xiao, Saizi & Yeoh, Emile, 2018. "Subjective well-being in China, 2005–2010: The role of relative income, gender, and location," China Economic Review, Elsevier, vol. 48(C), pages 83-101.
    12. Cohen-Zada, Danny & Sander, William, 2010. "Religious Participation versus Shopping: What Makes People Happier?," IZA Discussion Papers 5198, Institute of Labor Economics (IZA).
    13. Erda Wang & Nannan Kang & Yang Yu, 2017. "Valuing Urban Landscape Using Subjective Well-Being Data: Empirical Evidence from Dalian, China," Sustainability, MDPI, vol. 10(1), pages 1-20, December.
    14. Piper, Alan T., 2012. "Dynamic Analysis and the Economics of Happiness: Rationale, Results and Rules," MPRA Paper 43248, University Library of Munich, Germany, revised Dec 2012.
    15. Timothy Tyler Brown, 2013. "A monetary valuation of individual religious behaviour: the case of prayer," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 2031-2037, May.
    16. Wolfgang Maennig & Markus Wilhelm, 2012. "Becoming (un)employed and life satisfaction: asymmetric effects and potential omitted variable bias in empirical happiness studies," Applied Economics Letters, Taylor & Francis Journals, vol. 19(17), pages 1719-1722.
    17. Howley, P., 2016. "Valuing the benefits from health care interventions using life satisfaction data," Health, Econometrics and Data Group (HEDG) Working Papers 16/01, HEDG, c/o Department of Economics, University of York.
    18. Nikolaev, Boris, 2016. "Does Higher Education Increase Hedonic and Eudaimonic Happiness?," MPRA Paper 78438, University Library of Munich, Germany.
    19. Wenshu Gao & Russell Smyth, 2011. "What keeps China's migrant workers going? Expectations and happiness among China's floating population," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 16(2), pages 163-182.
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