Journal of Happiness Studies

, Volume 13, Issue 4, pp 621–645 | Cite as

Happiness No Matter the Cost? An Examination on How Efficiently Individuals Reach Their Happiness Levels

  • Martin BinderEmail author
  • Tom Broekel
Research Paper


Happiness measures, reflecting individuals’ well-being, have received increasing attention by policy makers. Policies could target absolute happiness levels when aiming at increasing a society’s well-being. But given upper bounds of happiness measures, as well as the possibilities of decreasing returns to happiness resources, we argue that an important measure of interest is the efficiency with which individuals convert their resources into happiness. In order to examine the effects of policies on this efficiency and to better understand the trajectories of human well-being over time, we suggest an efficiency measure that is calculated via a nonparametric order-m approach borrowed from the production efficiency literature. Our approach is exemplified using micro level data from the British Household Panel Survey (BHPS). Between 20 and 27% of the British populace are efficient in attaining happiness during our sample period. A negative influence on “happiness efficiency” is being unemployed while a positive influence is cohabitation with a partner. Our results are robust with respect to using a more comprehensive subjective well-being measure, but there are gender differences, for example in the (positive) influence that retirement has on males’ efficiency, or the (positive) influence of maternity leave on females.


Happiness Subjective well-being Efficiency analysis Hedonic adaptation 



We like to thank two anonymous referees for their very helpful comments and suggestions, and especially for gently prodding us to give more thought to the problem of how to select inputs versus intervening factors. We also thank participants of the HEIRS conference in Milan 2011 for useful input.


  1. Alesina, A., Di Tella, R., & MacCulloch R. (2004). Inequality and happiness: Are Europeans and Americans different? Journal of Public Economics, 88, 2009–2042.CrossRefGoogle Scholar
  2. Baker, L. A., Cahalin, L. P., Gerst, K., & Burr, J. A. (2005). Productive activities and subjective well-being among older adults: The influence of number of activities and time commitment. Social Indicators Research, 73, 431–458.CrossRefGoogle Scholar
  3. Becchetti, L., Pelloni, A., & Rossetti, F. (2008). Relational goods, sociability, and happiness. Kyklos, 61(3), 343–363.CrossRefGoogle Scholar
  4. Bechtel, T. G. (2007). The pursuit of happiness. Survey Research Methods, 1(2), 109–120.Google Scholar
  5. Benz, M., & Frey, B. S. (2004). Being independent raises happiness at work. Swedish Economic Policy Review, 12, 95–134.Google Scholar
  6. Benz, M., & Frey, B. S. (2008). Being independent is a great thing: Subjective evaluations of self-employment and hierarchy. Economica, 75, 362–383.CrossRefGoogle Scholar
  7. BHPS (2009). British Household Panel Survey.
  8. Binder, M., & Broekel, T. (2010). The neglected dimension of well-being: Analyzing the development of “conversion effciency” in Great Britain. Jena Economic Research Papers 2010-067.Google Scholar
  9. Binder, M., & Coad, A. (2010a). An examination of the dynamics of well-being and life events using vector autoregressions. Journal of Economic Behavior & Organization, 76, 352–371.CrossRefGoogle Scholar
  10. Binder M., & Coad A. (2010b). Disentangling the circularity in Sen’s capability approach—an analysis of the co-evolution of functioning achievement and resources. Social Indicators Research (Forthcoming). doi: 10.1007/s11205-010-9714-4.
  11. Binder, M., & Coad, A. (2010c). Life satisfaction and self-employment: A matching approach. Papers on Economics & Evolution #1020.Google Scholar
  12. Binder, M., & Broekel, T. (2011). Applying a robust non-parametric efficiency analysis to measure conversion efficiency in Great Britain. Journal of Human Development and Capabilities, 12(2), 257–281.CrossRefGoogle Scholar
  13. Binder, M., & Coad, A. (2011). From Average Joe’s happiness to Miserable Jane and Cheerful John: Using quantile regressions to analyze the full subjective well-being distribution. Journal of Economic Behavior & Organization. doi: 10.1016/j.jebo.2011.02.005.
  14. Blanchflower, D. G., & Oswald, A. J. (1998). What makes an entrepreneur? Journal of Labor Economics, 16(1), 26–60.CrossRefGoogle Scholar
  15. Bonaccorsi, A., Daraio, C., & Simar, L. (2005). Advanced indicators of productivity of universities. An application of robust nonparametric methods to Italian data. Scientometrics, 66(2), 389–410.CrossRefGoogle Scholar
  16. Bruni, L., & Stanca, L. (2008). Watching alone: Relational goods, television and happiness. Journal of Economic Behavior & Organization, 65, 506–528.CrossRefGoogle Scholar
  17. Carnelley, K. B., Wortman, C. B., Bolger, N., & Burke, C. T. (2006). The time course of grief reactions to spousal loss: Evidence from a national probability sample. Journal of Personality and Social Psychology, 91(3), 476–492.CrossRefGoogle Scholar
  18. Cazals, C., Florens, J.-P., & Simar, L. (2002). Nonparametric frontier estimation: A robust approach. Journal of Econometrics, 106(1), 1–25.CrossRefGoogle Scholar
  19. Clark, A. E. (2003). Unemployment as a social norm: Psychological evidence from panel data. Journal of Labor Economics, 21(2), 323–351.CrossRefGoogle Scholar
  20. Clark, A. E., Diener, E., Georgellis, Y., & Lucas, R. E. (2008a). Lags and leads in life satisfaction: A test of the baseline hypothesis. The Economic Journal, 118, F222–F243.CrossRefGoogle Scholar
  21. Clark, A. E., Frijters, P., & Shields, M. A. (2008b). Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature, 46(1), 95–144.CrossRefGoogle Scholar
  22. Clark, A. E., & Georgellis, Y. (2010). Back to baseline in Britain: Adaptation in the BHPS. Mimeo.Google Scholar
  23. Clark, A. E., & Oswald, A. J. (1994). Unhappiness and unemployment. The Economic Journal 104(424), 648–659.CrossRefGoogle Scholar
  24. Clark, A. E., & Oswald, A. J. (2002). A simple statistical method for measuring how life events affect happiness. International Journal of Epidemiology, 31, 1139–1144.CrossRefGoogle Scholar
  25. Coelli, T., & Perleman, S. (1999). A comparison of parametric and non-parametric distance functions: With application to European railways. European Journal of Operational Research, 117, 326–339.CrossRefGoogle Scholar
  26. Daraio, C., & Simar, L. (2005). Conditional nonparametric frontier models for convex and non convex technologies: A unifying approach. LEM Working Paper Series, 12.Google Scholar
  27. Daraio, C.& Simar, L. (2007). Advanced robust and nonparametric methods in efficiency analysis: Methodology and applications. Boston, Dordrecht: Kluwer.Google Scholar
  28. Dasgupta, P. (1990). Well-being and the extent of its realisation in poor countries. The Economic Journal, 100(400), 1–32.CrossRefGoogle Scholar
  29. Deprins, D., Simar, L., & Tulkens, H. (1984). Measuring labor efficiency in post offices. In M. Marchand, P. Pestieau & H. Tulkens (Eds.), The performance of public enterprises: Concepts and measurements (pp. 345–367). Amsterdam: Elsevier.Google Scholar
  30. Deutsch, J., Ramos, X., & Silber, J. (2003). Poverty and inequality of standard of living and quality of life in Great Britain. In M. J. Sirgy, D. Rahtz & A. C. Samli (Eds.), Advances in quality-of-life theory and research (Chap. 7, pp. 99–128). Dordrecht: Kluwer.Google Scholar
  31. Di Tellax R., MacCulloch, R. J., & Oswald, A. J. (2001). Preferences over inflation and unemployment: Evidence from surveys of happiness. The American Economic Review, 91(1), 335–341.CrossRefGoogle Scholar
  32. Diener, E., Emmons, R. A., Larsen, R. J., & Griffin, S. (1985). The satisfaction with life scale. Journal of Personality Assessment, 49(1), 71–75.CrossRefGoogle Scholar
  33. Diener, E., & Lucas, R. E. (1999). Personality and subjective well-being. In Kahneman et al. (Eds.), (Chap. 11, pp. 213–229).Google Scholar
  34. Diener, E., & Seligman, M. E. P. (2004). Beyond money—toward an economy of well-being. Psychological Science in the Public Interest, 5(1), 1–31.CrossRefGoogle Scholar
  35. Diener, E., Suh, E., Lucas, R. E., & Smith H. L. (1999). Subjective well-being: Three decades of progress. Psychological Bulletin, 125(2), 276–302.CrossRefGoogle Scholar
  36. Dolan, P., Peasgood, T., & White, M. (2008). Do we really know what makes us happy? A review of the economic literature on the factors associated with subjective well-being. Journal of Economic Psychology, 29, 94–122.CrossRefGoogle Scholar
  37. Easterlin, R. A. (1974). Does economic growth improve the human lot? Some empirical evidence. In P. David & M. Reder (Eds.), Nations and households in economic growth (pp. 89–125). New York, London: Academic Press.Google Scholar
  38. Easterlin, R. A. (2001). Income and happiness: Towards a unified theory. The Economic Journal, 111, 465–484.CrossRefGoogle Scholar
  39. Easterlin, R. A. (2002). Happiness in economics. Cheltenham, UK: Edward Elgar.Google Scholar
  40. Easterlin, R. A. (2003). Explaining happiness. Proceedings of the National Academy of Sciences, 100(19), 11176–11183.CrossRefGoogle Scholar
  41. Farina, F., Peluso, E., & Savaglio, E. (2004). Ranking opportunity sets in the space of functionings. Journal of Economic Inequality, 2, 105–116.CrossRefGoogle Scholar
  42. Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society. Series A (General), 120(3), 253–290.CrossRefGoogle Scholar
  43. Fernandez-Dols, J.-M., & Ruiz-Belda, M.-A. (1995). Are smiles a sign of happiness? Gold medal winners at the Olympic games. Journal of Personality and Social Psychology, 69(6), 1113–1119.CrossRefGoogle Scholar
  44. Ferrer-i-Carbonell, A. (2005). Income and well-being: An empirical analysis of the comparison income effect. Journal of Public Economics, 89, 997–1019.CrossRefGoogle Scholar
  45. Ferrer-i Carbonell, A., & Frijters, P. (2004). How important is methodology for the estimates of the determinants of happiness? The Economic Journal, 114, 641–659.CrossRefGoogle Scholar
  46. Frederick, S., & Loewenstein, G. F. (1999). Hedonic adaptation. In Kahneman et al. (Eds.), (pp. 302–329).Google Scholar
  47. Frey, B. S., & Stutzer, A. (2002). Happiness and economics. Princeton, NJ: Princeton University Press.Google Scholar
  48. Frey, B. S., & Stutzer, A. (2005). Happiness research: State and prospects. Review of Social Economy, 62(2), 207–228.CrossRefGoogle Scholar
  49. Gardner, J., & Oswald, A. J. (2007). Money and mental wellbeing: A longitudinal study of medium-sized lottery wins. Journal of Health Economics, 26, 49–60.CrossRefGoogle Scholar
  50. Gerdtham, U.-G., & Johannesson, M. (2001).The relationship between happiness, health, and socio-economics factors: Results based on Swedish microdata. Journal of Socio-Economics, 30, 553–557.CrossRefGoogle Scholar
  51. Graham, C., Eggers, A., & Sukhtankar, S. (2004). Does happiness pay? An exploration based on panel data from Russia. Journal of Economic Behavior & Organization, 55, 319–342.Google Scholar
  52. Grossman, M. (2005). Education and nonmarket outcomes. NBER Working Paper, No. 11582.
  53. Headey, B. (2010). The set point theory of well-being has serious flaws: On the eve of a scientific revolution? Social Indicators Research, 97, 7–21.CrossRefGoogle Scholar
  54. Helliwell, J. F. (2003). How’s life? Combining individual and national variables to explain subjective well-being. Economic Modelling, 20, 331–360.CrossRefGoogle Scholar
  55. Helliwell, J. F. (2006). Well-being, social capital and public policy: What’s new? Economic Journal, 116, C34–C45.CrossRefGoogle Scholar
  56. Hudson, J. (2006). Institutional trust and subjective well-being across the EU. Kyklos, 59(1), 43–62.CrossRefGoogle Scholar
  57. Johnston, D. W., Propper, C., & Shields, M. A. (2009). Comparing subjective and objective measures of health: Evidence from hypertension for the income/health gradient. Journal of Health Economics 28(3), 504–552.CrossRefGoogle Scholar
  58. Kahneman, D., Diener, E., & Schwarz, N. (Eds.) (1999). Well-being: The foundations of hedonic psychology. New York: Russell Sage Foundation.Google Scholar
  59. Kahneman, D., Fredrickson, B. L., Schreiber, C. A., & Redelmeier, D. A. (1993). When more pain is preferred to less: Adding a better end. Psychological Science, 4(6), 401–405.CrossRefGoogle Scholar
  60. Krueger, A. B., & Schkade, D. (2008). The reliability of subjective well-being measures. Journal of Public Economics, 92, 1833–1845.CrossRefGoogle Scholar
  61. Kuklys, W. (2005). Amartya Sen’s capability approach—theoretical insights and empirical applications. Berlin: Springer.Google Scholar
  62. Lelkes, O. (2006). Knowing what is good for you: Empirical analysis of personal preferences and the “objective good”. Journal of Socio-Economics, 35, 285–307.CrossRefGoogle Scholar
  63. Lelli, S. (2001). Factor analysis versus fuzzy sets theory: Assessing the influence of different techniques on Sen’s functioning approach. Center for Economic Studies Discussion Paper Series 01.21.Google Scholar
  64. Levy, H., & Jenkins, S. P. (2008). Documentation for derived current and annual net household income variables, BHPS waves 1–16. Colchester: Institute for Social and Economic Research, University of Essex.Google Scholar
  65. Lovell, C. A. K., Richardson, S., Travers, P., & Wood, L. (1994). Resources and functionings: A new view of inequality in Australia. In W. Eichhorn (Ed.), Models and measurement of welfare and inequality. Heidelberg: Springer.Google Scholar
  66. Lucas, R. E. (2005). Time does not heal all wounds: A longitudinal study of reaction and adaptation to divorce. Psychological Science, 16(12), 945–950.CrossRefGoogle Scholar
  67. Lucas, R. E. (2007). Long-term disability is associated with lasting changes in subjective well-being: Evidence from two nationally representative longitudinal studies. Journal of Personality and Social Psychology, 92(4), 717–730.CrossRefGoogle Scholar
  68. Lucas, R. E., & Clark, A. E. (2006). Do people really adapt to marriage? Journal of Happiness Studies, 7, 405–426.CrossRefGoogle Scholar
  69. Lucas, R. E., Clark, A. E., Georgellis, Y., & Diener, E. (2004). Unemployment alters the set point for life satisfaction. Psychological Science, 15(1), 8–13.CrossRefGoogle Scholar
  70. Lykken, D., & Tellegen, A. (1996). Happiness is a stochastic phenomenon. Psychological Science, 7(3), 186–189.CrossRefGoogle Scholar
  71. Lyubomirsky, S., King, L., & Diener, E. (2005). The benefits of frequent positive affect: Does happiness lead to success? Psychological Bulletin, 131(6), 803–855.CrossRefGoogle Scholar
  72. McClements, L. D. (1977). Equivalence scales for children. Journal of Public Economics, 8(2), 191–210.CrossRefGoogle Scholar
  73. Myers, D. G. (1999). Close relationships and quality of life. In Kahneman et al. (1999) (pp. 374–391).Google Scholar
  74. New Economics Foundation (2009). Happy planet index 2.0.Google Scholar
  75. Ng, Y.-K. (2008a). Environmentally responsible happy nation index: Towards an internationally acceptable national success indicator. Social Indicators Research, 85, 425–446.CrossRefGoogle Scholar
  76. Ng, Y.-K. (2008b). Happiness studies: Ways to improve comparability and some public policy implications. Economic Record, 84(265), 253–266.CrossRefGoogle Scholar
  77. Oswald, A. J. (1997). Happiness and economic performance. The Economic Journal, 107(445), 1815–1831.CrossRefGoogle Scholar
  78. Oswald, A. J., & Powdthavee, N. (2008). Does happiness adapt? A longitudinal study of disability with implications for economists and judges. Journal of Public Economics, 92, 1061–1077.CrossRefGoogle Scholar
  79. Pichler, F. (2006). Subjective quality of life of young Europeans. Feeling happy but who knows why? Social Indicators Research, 75, 419–444.CrossRefGoogle Scholar
  80. Plagnol, A. C., & Easterlin, R. A. (2008). Aspirations, attainments, and satisfaction: Life cycle differences between American women and men. Journal of Happiness Studies, 8, 601–619.CrossRefGoogle Scholar
  81. Powdthavee, N. (2009). I can’t smile without you: Spousal correlation in life satisfaction. Journal of Economic Psychology, 30, 675–689.CrossRefGoogle Scholar
  82. Ramos, X. (2008). Using efficiency analysis to measure individual well-being with an illustration for Catalonia. In N. Kakwani & J. Silber (Eds.), Quantitative approaches to multidimensional poverty measurement (Chap. 9, pp. 155–175). Basingstoke: Palgrave Macmillan.Google Scholar
  83. Ramos, X., & Silber, J. (2005). On the application of efficiency analysis to the study of the dimensions of human development. Review of Income and Wealth, 51(2), 285–309.CrossRefGoogle Scholar
  84. Ravallion, M. (2005). On measuring aggregate “social efficiency”. Economic Development and Cultural Change, 53(2), 273–292.CrossRefGoogle Scholar
  85. Robeyns, I. (2006). Gender inequality in functionings and capabilities: Findings from the British Household Panel Survey. In P. Bharati & M. Pal (Eds.), Gender disparity: Its manifestations, causes and implications (Chap. 13, pp. 236–277). Delhi: Anmol.Google Scholar
  86. Ryff, C. D., & Keyes, C. L. M. (1995). The structure of psychological well-being revisited. Journal of Personality and Social Psychology, 69(4), 719–727.CrossRefGoogle Scholar
  87. Sandvik, E., Diener, E., & Seidlitz, L. (1993). Subjective well-being: The convergence and stability of self-report and non-self-report measures. Journal of Personality, 61(3), 317–342.CrossRefGoogle Scholar
  88. Shields, M. A., & Wheatley Price, S. (2005). Exploring the economic and social determinants of psychological well-being and perceived social support in England. Journal of the Royal Statistical Society. Series A (Statistics in Society), 168(3), 513–537.CrossRefGoogle Scholar
  89. Shiv, B., & Huber, J. (2000). The impact of anticipating satisfaction on consumer choice. Journal of Consumer Research, 27(2), 202–216.CrossRefGoogle Scholar
  90. Shizgal, P. (1999). On the neural computation of utility: Implications from studies of brain stimulation reward. In Kahneman et al. (Eds.), (pp. 500–524).Google Scholar
  91. Stevenson, B., & Wolfers, J. (2008). Economic growth and subjective well-being: Reassessing the Easterlin paradox. Brookings Papers on Economic Activity, Spring 2008.Google Scholar
  92. Stiglitz, J. E., Sen, A. K., & Fitoussi, J.-P. (2009). Stiglitz-Sen-Fitoussi-Commission report.Google Scholar
  93. Stutzer, A. (2004). The role of income aspirations in individual happiness. Journal of Economic Behavior & Organization, 54, 89–109.CrossRefGoogle Scholar
  94. Stutzer, A., & Frey, B. S. (2006). Does marriage make people happy, or do happy people get married? Journal of Socio-Economics, 35, 326–347.CrossRefGoogle Scholar
  95. Taylor, M. F. E. (2009). British Household Panel Survey User Manual Volume A: Introduction, Technical Report and Appendices. In J. Brice, N. Buck, & E. Prentice-Lane (Eds.), Colchester: University of Essex.Google Scholar
  96. Veenhoven, R. (1991). Is happiness relative? Social Indicators Research, 24, 1–34.CrossRefGoogle Scholar
  97. Veenhoven, R. (2008). Healthy happiness: Effects of happiness on physical health and the consequences for preventive health care. Journal of Happiness Studies 9(3), 449–469.CrossRefGoogle Scholar
  98. Weiss, R. S. (1988). Loss and recovery. Journal of Social Issues, 44(3), 37–52.CrossRefGoogle Scholar
  99. Wilson, P. W. (1993). Detecting outliers in deterministic nonparametric frontier models with multiple outputs. Journal of Business & Economic Statistics, 11(3), 319–323.Google Scholar
  100. Winkelmann, L., & Winkelmann, R. (1998). Why are the unemployed so unhappy? Evidence from panel data. Economica, 65(257), 1–15.CrossRefGoogle Scholar
  101. Zimmermann, A. C., & Easterlin, R. A. (2006). Happily ever after? Cohabitation, marriage, divorce, and happiness in Germany. Population and Development Review, 32(3), 511–528.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.Max Planck Institute of EconomicsEvolutionary Economics GroupJenaGermany
  2. 2.Department of Economic Geography, Faculty of GeosciencesUtrecht UniversityUtrechtThe Netherlands

Personalised recommendations