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www.nber.org/~jwolfers The “Easterlin Paradox ” suggests that there is no link between the level of economic development of a society and average levels of happiness. We return to Easterlin’s question: “Will raising the incomes of all increase the happiness of all? ” and analyze multiple rich datasets spanning recent decades and a broader array of countries. We establish a clear positive link between GDP and average levels of subjective well-being across countries with no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. Moreover, we show that this relationship is consistent with the relationship between income and happiness within countries, suggesting a minimal role for relative income comparisons as drivers of happiness. Finally, we examine the relationship between changes in subjective well-being and income over time within countries, finding that economic growth has been associated with rising happiness.

We look for evidence of habituation in twenty waves of German panel data: do individuals, after life and labour market events, tend to return to some baseline level of well-being? Although the strongest life satisfaction effect is often at the time of the event, we find significant lag and lead effects. We cannot reject the hypothesis of complete adaptation to marriage, divorce, widowhood, birth of child, and layoff. However, there is little evidence of adaptation to unemployment. Men are somewhat more affected by labour market events (unemployment and layoffs) than are women, but in general the patterns of anticipation and adaptation are remarkably similar by sex.

In normative public economics it is crucial to know how fast the marginal utility of income declines as income increases. One needs this parameter for cost-benefit analysis, for optimal taxation and for the (Atkinson) measurement of inequality. We estimate this parameter using four large cross-sectional surveys of subjective happiness and two panel surveys. Altogether, the data cover over 50 countries and time periods between 1972 and 2005. In each of the six very different surveys, using a number of assumptions, we are able to estimate the elasticity of marginal utility with respect to income. We obtain very similar results from each survey. The highest (absolute) value is 1.34 and the lowest is 1.19, with a combined estimate of 1.26. The results are also very similar for subgroups in the population. We also examine whether these estimates (which are based directly on the scale of reported happiness) could be biased upwards if true utility is convex with respect to reported happiness. We find some evidence of such bias, but it is small—yielding a new estimated elasticity of 1.24 for the combined sample.

We use the life satisfaction approach to value air quality, combining individual-level panel and high-resolution SO2 data. To avoid simultaneity problems, we construct a novel instrument exploiting the natural experiment created by the mandated scrubber installation at power plants, with wind directions dividing counties into treatment and control groups. We find a negative effect of pollution on well-being that is larger for instrumental variable than conventional estimates, robust to controls for local unemployment, particulate pollution, reunification effects and rural/urban trends, and larger for environmentalists and predicted risk groups. To calculate total willingness-to-pay, the estimates are supplemented by hedonic housing regressions.

This article provides unprecedented direct evidence from large-scale survey data on both the intensity (how much?) and direction (to whom?) of income comparisons. Income comparisons are considered to be at least somewhat important by three-quarters of Europeans. They are associated with both lower levels of subjective well-being and a greater demand for income redistribution. The rich compare less and are happier than average when they do, which latter is consistent with relative income theory. With respect to the direction of comparisons, colleagues are the most frequentlycited reference group. Those who compare to colleagues are happier than those who compare to other benchmarks. In two eponymous articles (1974, 1995), Easterlin famously asked ÔWill raising the incomes of all improve the happiness of all? ’ and ÔDoes economic growth improve the human lot? ’ To explain his (negative) empirical answer, he appealed to the phenomena of social comparisons and adaptation to income. The Easterlin paradox has subsequently produced a very lively empirical and theoretical literature revolving around the evidence for, and the implications of, income comparisons (either to others or to oneself in the past). Both social comparisons and adaptation imply that utility is relative with respect to income, in the sense that individual well-being depends on the gap between the individual’s actual income and some reference benchmark. There is by now a substantial empirical literature regarding the existence and composition of reference groups. However, outside of the laboratory, where the reference group can be directly controlled (Falk and Ichino, 2006; McBride, 2006; Clark, et al., in press), the vast majority of empirical papers have simply imposed a certain reference group as

People spend a lot of time commuting and often find it a burden. According to standard economics, the burden of commuting is chosen when compensated either on the labor or on the housing market so that individuals ’ utility is equalized. However, in a direct test of this strong notion of equilibrium with panel data, we find that people with longer commuting time report systematically lower subjective well-being. This result is robust with regard to a number of alternative explanations. We mention several possibilities of an extended model of human behavior able to explain this “commuting paradox”.

policy, but the institute itself takes no institutional policy positions.

agricultural research centers that receive principal funding from governments, private foundations, and international and regional organizations, most of which are members of the Consultative Group on International Agricultural Research (CGIAR).

Abstract not found