How much does money really matter? Estimating the causal effects of income on happiness

Publication type

Research Paper

Series Number

09/02

Series

University of York Discussion Papers in Economics

Author

Publication date

June 1, 2009

Abstract:

There is a long tradition of psychologists finding small income effects on life satisfaction (or happiness). Yet the issue of income endogeneity in life satisfaction equations has rarely been addressed. This paper aims to do just that. Instrumenting for income and allowing for unobserved heterogeneity result in an estimated income effect that is almost twice as large as the estimate in the basic specification. The results call for a reexamination on previous findings that suggest money buys little happiness, and a reevaluation on how the calculation of compensatory packages to various shocks in the individual’s life events should be designed.

Subjects

Link

- http://ideas.repec.org/p/yor/yorken/09-02.html

Notes

discussion paper

#513176

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