Skip to main content

Satisfaction and comparison income in transition and developed economies

International Review of Economics volume 61, pages 127–152 (2014)Cite this article

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.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price includes VAT (USA)
Tax calculation will be finalised during checkout.

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.

References

  • Blanchflower D, Oswald A (2004) Well-being over time in Britain and the USA. J Public Econ 88:1359–1386

    Article  Google Scholar 

  • Campbell A, Converse PE, Rodgers WL (1976) The quality of American life: perceptions, evaluations, and satisfactions. Russell Sage Foundation, New York

    Google Scholar 

  • Clark AE, Oswald A (1996) Satisfaction and comparison income. J Public Econ 61:359–381

    Article  Google Scholar 

  • Clark AE, Senik C (2010) Who compares to whom? The anatomy of income comparisons in Europe. Econ J 120(544):573–594

    Article  Google Scholar 

  • Di Tella R, Haisken Denew J, MacCulloch R (2010) Happiness adaptation to income and to status in an individual panel. J Econ Behav Organ 76:834–852

    Article  Google Scholar 

  • Duesenberry JS (1949) Income, saving and the theory of consumer behaviors. Harvard University Press, Cambridge

    Google Scholar 

  • Dumludag D (2013) Life satisfaction and income comparison effects in Turkey. Soc Indic Res 114(3):1199–1210

    Google Scholar 

  • Easterlin R (1974) Does economic growth improve the human lot? In: David PA, Reder MW (eds) Nations and households in economic growth: essays in honor of Moses Abramovitz. Academic Press, New York

    Google Scholar 

  • Easterlin R (1995) Will raising the incomes of all increase the happiness of all? J Econ Behav Organ 27(1):35–48

    Article  Google Scholar 

  • Easterlin RA (2009) Lost in transition: life satisfaction on the road to capitalism. J Econ Behav Organ 71(2):130–145

    Article  Google Scholar 

  • EBRD (2006) Life in Transition Survey, http://www.ebrd.com/pages/research/publications/special/lifeintransition.shtml

  • EBRD (2011) Life in Transition Survey II. http://www.ebrd.com/pages/research/publications/special/transitionII.shtml

  • Ferrer-i-Carbonell A (2005) Income and well-being: an empirical analysis of the comparison income effect. J Public Econ 89:997–1019

    Article  Google Scholar 

  • Ferrer-i-Carbonell A, Frijters P (2004) How important is methodology for the estimates of the determinants of happiness? Econ J 114(497):641–659

    Article  Google Scholar 

  • Festinger L (1954) A theory of social comparison processes. Hum Relat 7:117–140

    Article  Google Scholar 

  • Frank RH (1985a) The demand for unobservable and other nonpositional goods. Am Econ Rev 75:101–116

    Google Scholar 

  • Frank RH (1985b) Choosing the right pond: human behavior and the quest for status. Oxford University Press, New York

    Google Scholar 

  • Frey B, Stutzer A (2002) What can economists learn from happiness research? J Econ Lit XL:402–435

    Article  Google Scholar 

  • Frijters P, Haisken-DeNew JP, Shields MA (2004) Money does matter! Evidence from increasing real income and life satisfaction in East Germany following reunification. Am Econ Rev 94(3):730–740

    Article  Google Scholar 

  • Goerke L, Pannenberg M (2013) Direct evidence on income comparisons and subjective well-being, SOEP papers on multidisciplinary panel data research no. 549

  • Hirsch F (1976) Social limits to growth. Harvard University Press, Cambridge

    Book  Google Scholar 

  • Inglehart R (1997) Modernization and postmodernization: cultural, economic, and political change in 43 societies, vol 19. Princeton University Press, Princeton

    Google Scholar 

  • Kapteyn A (1977) A theory of preference formation. Ph.D. thesis, Leyden University

  • Kapteyn A, Van Praag BMS, Van Herwaarden FG (1978) Individual welfare functions and social reference spaces [0165-1765]. Econ Lett 1(2):173

    Article  Google Scholar 

  • Layard R (1980) Human satisfactions and public policy. Econ J 90:737–750

    Google Scholar 

  • Layard R (2005) Happiness. Lessons from a new science. Penguin Books, New York

    Google Scholar 

  • Luttmer EFP (2005) Neighbors as negatives: relative earnings and well-being. Q J Econ 120:963–1002

    Google Scholar 

  • Marx K (1849) Wage-labour and capital. May 2002. http://eserver.org/marx/1849-wage.labor.capital/6-labor.and.capital.txt

  • Mayraz G, Wagner GG, Schupp J (2009) Life satisfaction and relative income: perceptions and evidence. In: CEP discussion paper, no. 938. Centre for Economic Performance, London School of Economics and Political Science, London, UK

  • McBride M (2001) Relative-income effects on subjective well-being in the cross-section. J Econ Behav Organ 45(3):251–278

    Article  Google Scholar 

  • Michalos AC (1985) Multiple discrepancies theory (MDT). Soc Indic Res 16(4):347–413

    Article  Google Scholar 

  • Namazie C, Sanfey P (2001) Happiness and transition: the case of Kyrgyzstan. Rev Dev Econ 5(3):392–405

    Article  Google Scholar 

  • Pollak RA (1976) Interdependent preferences. Am Econ Rev 66(3):309–320

    Google Scholar 

  • Sanfey P, Teksoz U (2007) Does transition make you happy? Econ Transit 15(4):707–731

    Article  Google Scholar 

  • Schyns P (2000) The relationship between income, changes in income and life-satisfaction in West Germany and the Russian Federation: relative, absolute, or a combination of both? In: Social indicators research series: advances in quality of life theory and research. Springer, Netherlands, pp 83–109

  • Selezneva E (2011) Surveying transitional experience and subjective well-being: income, work, family. Econ Syst 35(2):139–157

    Article  Google Scholar 

  • Senik C (2004) When information dominates comparison: learning from Russian subjective panel data. J Public Econ 88(9):2099–2123

    Article  Google Scholar 

  • Senik C (2008) Ambition and jealousy: income interactions in the ‘Old’Europe versus the ‘New’Europe and the United States. Economica 75(299):495–513

    Article  Google Scholar 

  • Senik C (2009) Direct evidence on income comparisons and their welfare effects. J Econ Behav Organ 72:408–424

    Article  Google Scholar 

  • Smith A (1937) The wealth of nations. Modern Library, New York

    Google Scholar 

  • Stutzer A (2004) The role of income aspirations in individual happiness. J Econ Behav Organ 54(1):89–109

    Article  Google Scholar 

  • Van Praag BMS (1968) Individual welfare functions and consumer behavior. North-Holland, Amsterdam

    Google Scholar 

  • Veblen T (1899) The theory of leisure class. Modern Library, New York

    Google Scholar 

  • Veenhoven R (1991) Is happiness relative? Soc Indic Res 24:1–34

    Article  Google Scholar 

  • Veenhoven R (2001) Are the Russians as unhappy as they say they are? J Happiness Stud 2(2):111–136

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Marmara University, Istanbul, Turkey

    Devrim Dumludag

  2. Department of Economics (AE1), Maastricht University, Maastricht, The Netherlands

    Devrim Dumludag

Authors
  1. Devrim Dumludag
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Devrim Dumludag.

Appendix

Appendix

See Tables 5, 6, 7, 8 and 9.

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

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

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

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • 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