Income and happiness: Evidence, explanations and economic implications

Andrew Clark (), Paul Frijters () and Michael A. Shields ()

PSE Working Papers from PSE (Ecole normale supérieure)

Abstract: There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues.

New Economics Papers: this item is included in nep-cbe, nep-knm, nep-pol, nep-soc and nep-upt
Date: 2006
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Persistent link: http://EconPapers.repec.org/RePEc:pse:psecon:2006-24

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