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

Publication type

Journal Article

Author

Publication date

June 1, 2010

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. The present paper is an attempt to estimate the causal effect of income on happiness. 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

Published in

Empirical Economics

Volume

Volume: 39 (1):77-92

DOI

http://dx.doi.org/10.1007/s00181-009-0295-5

Subjects

Notes

Online in A/S except current year

Originally 'Online First' 25 Apr.2009

Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*

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