Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles

Clarke, Andrew E., Frijters, Paul and Shields, Michael A. (2008) Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature, 46 1: 95-144. doi:10.1257/jel.46.1.95

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Author Clarke, Andrew E.
Frijters, Paul
Shields, Michael A.
Title Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles
Journal name Journal of Economic Literature   Check publisher's open access policy
ISSN 0022-0515
Publication date 2008-03
Sub-type Article (original research)
DOI 10.1257/jel.46.1.95
Volume 46
Issue 1
Start page 95
End page 144
Total pages 50
Place of publication Nashville, TN, United States
Publisher American Economic Association
Language eng
Abstract The well-known Easterlin paradox points out that average happiness has remained constant over time despite sharp rises in GNP per head. At the same time, a micro literature has typically found positive correlations between individual income and individual measures of subjective well-being. This paper suggests that these two findings are consistent with the presence of relative income terms in the utility function. Income may be evaluated relative to others (social comparison) or to oneself in the past (habituation). We review the evidence on relative income from the subjective well-being literature. We also discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological)related to income comparisons. We last consider how relative income in the utility function can affect economic models of behavior in the domains of consumption, investment, economic growth, savings, taxation, labor supply, wages, and migration.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Non-UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: ERA 2012 Admin Only
School of Economics Publications
 
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Created: Mon, 26 Sep 2011, 15:22:38 EST by Alys Hohnen on behalf of School of Economics