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Satisfaction and comparison income in transition and developed economies

Abstract

The main purpose of this paper is to evaluate the impact of different types of income comparison on subjective well-being in transition countries and developed European countries. The paper relies on the Life in Transition Survey (European Bank for Reconstruction and Development 2011), which was conducted in late 2010 jointly by the European Bank for Reconstruction and Development and the World Bank. The emphasis of the paper is on income comparisons, specifically; local comparisons and self-ranking. The main findings reveal that comparisons have a significant impact on life satisfaction in transition countries, whereas the relationship between comparison and life satisfaction is ambiguous in developed European countries. In transition countries, the impact of comparisons is asymmetric: in most cases, under-performing one’s benchmark has a greater effect than out-performing it. In transition countries, both downward and upward evaluations have an impact on life satisfaction, while it is worthy of note that all upward evaluations have no effect on life satisfaction in developed European countries.

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Notes

  1. Earlier classical economists such as Adam Smith and Karl Marx also mention relative comparisons. Dealing with the growth of wealth Smith (1937) recognized them as a result of “passions”, while Marx (1849) claimed that they explained the social aspect of utility.

  2. In economics, the oldest and most developed neo-cardinal methodology leading to a cardinal representation of individual utility is the Leyden approach based on a complicated procedure that involves an infinite number of consumption groups with a cumulative density function of a lognormal distribution. For details see: Van Praag (1968).

  3. For a detailed survey about life satisfaction and transition countries see: Selezneva (2011) and Clark and Senik (2010).

  4. Although the term “transition economies” usually covers the countries of Central and Eastern Europe and the Former Soviet Union, this term may have a wider context. The categorization of European Bank for Reconstruction and Development (EBRD) include central Eastern Europe and the Baltic States, south-eastern Europe, Eastern Europe and the Caucasus and Central Asia.

  5. For income comparison effects on life satisfaction for the Turkish case see Dumludag (2013).

  6. Although information related to income was not used in the survey, expenditure may give a much better indication of the material resources available to individuals. According to the Life In Transition Survey (2011), standard of living is measured using a series of questions regarding household expenditure over the past 12 months based on a comprehensive list of several items including food, beverages and tobacco; utilities (electricity, water, gas, heating, fixed-line phone); transportation (public transportation, fuel for car); education (including tuition, books, kindergarten expenses); health (including medicines and health insurance); clothing and footwear; and durable goods (e.g., furniture, household appliances: TV, car, etc).

  7. For detailed information about descriptive statistics, see “Appendix” Tables 4 and 5; for regression results for SEE and CEE and former Soviet countries, see “Appendix” Table 6.

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Correspondence to Devrim Dumludag.

Appendix

Appendix

See Tables 5, 6, 7, 8 and 9.

Table 5 Descriptive statistics—countries
Table 6 Descriptive statistics—variables
Table 7 OLS estimations, dependent variable: life satisfaction
Table 8 OLS estimations (consumption effect), dependent variable: life satisfaction
Table 9 OLS estimations (consumption effect), dependent variable: life satisfaction

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Dumludag, D. Satisfaction and comparison income in transition and developed economies. Int Rev Econ 61, 127–152 (2014). https://doi.org/10.1007/s12232-014-0201-0

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  • DOI: https://doi.org/10.1007/s12232-014-0201-0

Keywords

  • Life satisfaction
  • Transition countries
  • Economic development
  • Income comparisons

JEL Classification

  • O1
  • D00
  • D6
  • Z00