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Income and Happiness: New Results from Generalized Threshold and Sequential Models

Stefan Boes () and Rainer Winkelmann ()

No 407, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: Empirical studies on the relationship between income and happiness commonly use standard ordered response models, the most well-known representatives being the ordered logit and the ordered probit. However, these models restrict the marginal probability effects by design, and therefore limit the analysis of distributional aspects of a change in income, that is, the study of whether the income effect depend on a person�s happiness. In this paper we pinpoint the shortcomings of standard models and propose two alternatives, namely generalized threshold and sequential models. With data of two waves of the German Socio-Economic Panel, 1984 and 1997, we show that the more general models yield different marginal probability effects than standard models.

Keywords: Ordered response models; marginal effects; subjective well-being (search for similar items in EconPapers)
JEL-codes: C25 I31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm
Date: 2004-06
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