Abstract
The recent availability of cross-sectional and longitudinal survey data on life satisfaction in a large number of countries gives us the opportunity to verify empirically (and not just to assume) what matters for individuals and what economists and policymakers should take into account when trying to promote personal and societal well-being. We now have ample evidence, generally robust to different cultural backgrounds, on the effects of some important happiness drivers (income, health, unemployment, marital status, etc.) which can be considered “quasi-stylized facts” of happiness. If economic policies, for many obvious reasons, cannot maximize self-declared life satisfaction as such, we are nonetheless learning a lot from these findings. In particular, results on the relevance of relational goods, on the inflation/unemployment trade-off in terms of welfare and, more in general, on the measurement of the shadow value of non-market goods obtained with life satisfaction estimates are conveying relevant information about individual preferences and what is behind utility functions. Such findings suggest that the anthropological reductionism characterizing most economic models can be misleading and that target indicators of economic policies have to be refocused if we want to minimize the distance between economic development and human progress.
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Notes
Among these databases, the most important having information covering a large number of countries and years are the World Value Survey, the World Poll of the Gallup organization; the Eurobarometer and the European Household Survey. On the other side, we have several panel databases available which contain longitudinal information on self-declared happiness (British Household Survey Panel, German Socioeconomic Panel, and Russia Monitoring Survey) although they have it for a single country.
The words most commonly used to indicate well-being have different nuances in different languages. For instance, the English word happiness has its root in the verb “to happen” and gluck (happiness in German) is close in meaning to luck. The French (bonheur) and Italian (felicità) lack this reference to chance (Bruni and Porta 2005).
For the development of the concept of capabilities see Sen (1985a, b). As is well-known capabilities are defined in Sen (1999) as “the alternative combinations of functionings that are feasible for a person to achieve” (p. 75) and, in turn, functionings as “various things a person may value being or doing” (p. 75).
An interesting exception is in the comparison between average happiness levels of Mexican and US citizens from the World Value Survey data with the former being on average slightly happier than the latter. A part from the methodological difficulties in comparing self-declared life satisfaction among different cultures (see Sect. 4), this finding is not inconsistent, as it may seem to be, with the flow of Mexicans moving to the United States. Actually, the “vote with feet” of unhappy Mexicans can be part of a sorting and matching process by which those Mexicans for which money matters more move to the United States, thereby leaving in their countries citizens with are happier with a lower level of income.
Brandolini et al. (2010) calculate a median net worth to disposable income ratio of 1 in 2001 in the United States against a 4.8 value for Italy in 2002 based on domestic survey data.
From a methodological point of view, the objection that the finding may be due to the fact that the measures of happiness used in surveys have an upper bound is not very convincing as we are far from that upper bound (the share of very happy people is around 20 % of the population). The more general problems related to measuring life satisfaction and happiness (cardinality/ordinality of the measure, heterogeneity in life satisfaction scales across individual and countries) will be discussed in detail in Sect. 6.
A football match and a comic movie may be seen alone on TV, but, in that case, the absence of other close co-participants will deprive the participant of the fruition of the above-mentioned public goods incorporated in such events.
This mean that they do not have a price and a shadow value has to be estimated.
This does not prevent the possibility that relational goods are bundled with other goods. When travel agents sell packaged holidays for affinity groups, they are in a sense also putting in the bundle the companionship of fellow-customers, while clubs the companionship of fellow members (Becchetti et al. 2009a). In such case, the non-instrumentality of the companionship is preserved by the fact that the actual producers of the relational goods are not their sellers (even though it is not likely that the bundling produces the best quality of relational goods).
Different ways of considering others in the utility function have correspondences in alternative philosophical views on human relationships. Grossly simplifying, in the history of literature and philosophy, we move from the extreme perspective of Camus, for which “hell is others”, to that of a branch of philosophical thought which includes Mounier (1949), Levinas (1972) and Buber (1944), considering the human nature as intrinsically relational (or persons as “knots into which relationships are tied”) and thereby arguing that human flourishing is impossible without a good relational life.
We notice, however, that the econometric techniques we use are unable to capture these more universal benefits of relational goods.
According to these authors, one of the strongest pieces of evidence in favour of complementarities across either leisure or work is that an overwhelming share of the population both in Europe and the United States takes its two days of leisure during Saturday and Sunday. There would be huge benefits from staggering work so that different people take different days off during the week: this could reduce commuting time and would allow capital to be spread over more workers: the fact that this is not done suggest that the costs in terms of forgone welfare due to less coordinated leisure would be sizable as well.
By “indirect” literature, we mean empirical analyses focused on the impact of other factors which use the number of children as a control variable. In the indirect literature, there may not be a specific effort in going beyond the first regression findings to check the robustness of results on variables which are not the main focus of the paper.
Needless to say, we are talking about an aggregate average effect. Subsample splits, interactions with slope dummies and quantile regressions can articulate in more detail the relationship between the two variables.
For a methodological discussion of the momentary affect approach see Sect. 4.
For details of this approach which calculates scale elasticity using income satisfaction estimates see Schwarze (2003).
Hayward and Hedge (2005) document that “Educational attainment is positively associated both with health status and with healthy lifestyles. For example, in the 1996–1997 [Canadian] National Population Health Survey, only 19 % of respondents with less than high school education rated their health as ‘excellent’, compared with almost 30 % of university graduates. Self-rated health, in turn, has been shown to be a reliable predictor of health problems, health-care utilization, and longevity. From a health determinant perspective, education is clearly a good investment that can reduce long-term health care costs” (pp. 37–38).
For positive and significant results see Di Tella et al. (2001) on Eurobarometer data, on World Value Survey data, Albert and Davia (2005) on the European Community Household Panel and Hayo and Sefiert (2003) for Eastern European countries between 1991 and 1995. Fore negative and significant results see Clark and Oswald (1996).
In the contemporary Christian theology, the landmark of “personalist” anthropology is based on the principle of the creation of human beings “in image and similarity” with the relational nature of God’s trinity. Hence, human beings are inherently relational in nature and may be happier if they repeat the giving/receiving interchange mechanism which is typical of the God’s life.
A discussion on the use of happiness regression in calculating shadow values of non-market goods is provided in Sect. 4.3.
Diener and Tay (2012) identify many channels through which the life satisfaction effect on health occurs. Among them, negative emotions harm cardiovascular, immune and endocrine systems in humans, whereas positive emotions appear to help them (e.g. Edwards and Cooper 1988; Kiecolt-Glaser et al. 2002). Appleton et al. (2011) and Slopen et al. (2013) find that adversity and stress in childhood predict elevated markers of inflammation a few years later. Blanchflower et al. (2012) document that happier individuals have a healthier diet, eating more fruits and vegetables. Strine et al. (2008a, b) find that depressed individuals are more likely to be obese, twice as likely to smoke, and parallel results were found for those very high in anxiety. Further research on the field documents significant and positive links between self-declared happiness levels and healthy physical reactions such as smiling attitudes (Pavot 1991; Ekman et al. 1990) and heart rate and blood pressure responses to stress (Shedler et al. 1993).
The rationale for this somewhat unexpected positive contribution lies on the retirement shock which raises leisure time and leisure satisfaction (a crucial effect if we believe to the Bilancini and D’Alessandro (2011) endogenous growth explanation of the Baumol’s disease), on the reduction in both responsibilities and expectations which occur with ageing and on the natural selection of the happier and healthier which becomes a relevant phenomenon at this age cohort.
The indicator Healthy Life Years (HLY) at birth measures the number of years that a person at birth is still expected to live in a healthy condition. HLY is a health expectancy indicator which combines information on mortality and morbidity. The data required are the age-specific proportions of the population in healthy and unhealthy conditions and age-specific mortality information. A healthy condition is defined by the absence of limitations in functioning/disability. The indicator is calculated separately for males and females. The indicator is also called disability-free life expectancy (DFLE).
The indicator Healthy Life Years (HLY) at birth measures the number of years that a person at birth is still expected to live in a healthy condition. HLY is a health expectancy indicator which combines information on mortality and morbidity. The data required are the age-specific proportions of the population in healthy and unhealthy conditions and age-specific mortality information. A healthy condition is defined by the absence of limitations in functioning/disability. The indicator is calculated separately for males and females. The indicator is also called disability-free life expectancy (DFLE).
The most controversial evidence on this issue is provided by a research from Andriole et al. (2009), showing that PSA screening had no significant effect on prostate cancer deaths during the next 11 years in a randomized experiment on around 77,000 patients.
A first paradox we meet into in this field is that economists tend to believe that goals achieved with the minimum effort are those giving the highest level of utility, while in many cases, it may be exactly the opposite since effort gives flavour to what has been conquered.
On this point, it worth mentioning Frey and Stutzer (2002a) reporting Sen's (1986) sentence on the fact that\the popularity of the positivistic view is due to a mixture of an obsessive concern with observability and a peculiar belief that choice…is the only human aspect that can be observed and providing several examples of non-objectivist analyses such as theoretical studies on emotions (Elster 1998), self-signalling, goal completion mastery and meaning (Lowenstein 1999) and status (Frank 1985).
For an overview see Kahneman and Krueger (2006).
A useful distinction akin to the two approaches is made by Kahneman and Krueger (2006, p. 5) with the two concepts of experienced utility and remembered utility, that is, between “the way people feel about experiences in real time and the way they remember their experiences after they are over”.
The extreme generalized case in which policies are completely useless is that of the set point theory (Costa et al. 1987; Cummins et al. 2002) which states that any positive change in income (As any other event in life) has no permanent effects on happiness, the latter being uniquely determined by individual temperament.
This choice is preferred to the alternative of weighting the first coefficient at the numerator for the unemployment rate, which would make the index no longer a marginal rate of substitution and dependent on the unemployment level.
Protocol on the Statute of the European System of Central Banks and of European Central Bank. Objectives and tasks of the ECB (1992). Article 2: “In accordance with Article 105(1) of this Treaty, the primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, it shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2 of this Treaty. The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 4 of this Treaty”.
De Grauwe (2005) cites two main reasons for the ECBs approach, which he considers relatively more conservative and concerned about inflation. The first is the emphasis placed in the 1980s on the central bank’s independence (Barro and Gordon 1984) and the call for a more conservative central banker (see Rogoff 1985). The second is the role played by Germany in shaping the EMU and the Eurosystem.
Federal Reserve Act (1913), Section 2A—Monetary Policy Objectives: “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and creditaggregates commensurate with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates”.
Gordon Brown, as Chancellor of the Exchequer, in 1997 set out five economic tests on which any decision about UK membership of the EMU should be based: (1) Cyclical convergence: are business cycles and economic structures compatible so that we and others could live comfortably with euro interest rates on a permanent basis? (2) Flexibility: if problems emerge is there sufficient flexibility to deal with them? (3) Investment: would joining EMU create better conditions for firms making long-term decisions to invest in Britain? (4) Financial services: what impact would entry into EMU have on the competitive position of the UK’s financial services industry, particularly the City’s wholesale markets? (5) Employment and growth: in summary, will joining EMU promote higher growth, stability and a lasting increase in jobs? The Executive HM Treasury Report (1997) concluded as follows: “We need to demonstrate sustainable and durable convergence before we can be sure that British membership of EMU would be good for growth and jobs. Joining before such convergence is secured would risk harming both”.
More specifically, if the interest rate sensitivity in the United States of various demand components is different from that in the Euro area, this will affect the size of the interest rate changes required to maintain price stability, even in face of similar shocks. Furthermore, the euro area economy may be more rigid in presence of economic shocks and therefore require a more cautious response by monetary policy to news. A final point is that the size and source of the shocks hitting both economies are different (this is particularly evident when we compare productivity growth in the two areas). To sum up, if economic structures and sensitivity to shocks are different, even a common objective function would generate heterogeneous behaviours in the two areas.
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Becchetti, L., Pelloni, A. What are we learning from the life satisfaction literature?. Int Rev Econ 60, 113–155 (2013). https://doi.org/10.1007/s12232-013-0177-1
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DOI: https://doi.org/10.1007/s12232-013-0177-1