Formal institutions and subjective well-being: Revisiting the cross-country evidence

A long tradition in economics explores the association between the quality of formal institutions and economic performance. The literature on the relationship between such institutions and happiness is, however, rather limited, and inconclusive. In this paper, we revisit the findings from recent cross-country studies on the institution–happiness association. Our findings suggest that their conclusions are qualitatively rather insensitive to the specific measure of ‘happiness’ used, while the associations between formal institutions and subjective well-being differ among poor and rich countries. Separating different types of institutional quality, we find that in low-income countries the effects of economic–judicial institutions on happiness dominate those of political institutions, while analyses restricted to middle- and high-income countries show strong support for an additional beneficial effect of political institutions. Our results bear important implications that we discuss in the concluding section of the paper.     

Does Off-Farm Wage Employment Make Women in Rural Senegal Happy?

This paper investigates the impact of wage employment on women’s well-being in the Senegalese horticultural export industry. It uses a subjective well-being approach, based on self-reported happiness, to capture income and non-income aspects of employment. The study uses original survey data from 2013 for the Saint-Louis region in Senegal and an instrumental variable approach, supported by information from focus group discussions. It finds that women’s employment improves subjective well-being for the poorest women, but not for women whose household income is above the poverty threshold. Women’s employment improves women’s happiness through an income effect, as it leads to higher income levels and improved living standards, but the non-income effects reduce women’s happiness. This negative effect is related to a higher workload and low job satisfaction due to unfulfilled expectations. The positive income effect outweighs these negative non-income effects for poor women but not for relatively wealthier women.     

More and none? Children and parental well-being: A bimodal outcome from an instrumental variable approach

We examine the effect of the marginal child and the total number of children on self-reported well-being as a proxy for happiness. Prior literature has not controlled for endogeneity. We propose an instrumental variable approach which remediates the existing endogeneity problem, and generates a non-linear marginal effect and a bimodal distribution which explains why prior research arrived at competing positive, negative, or inconclusive outcomes. We provide evidence in support of a "parenting happiness gap" where happiness declines after the birth of the first child; however, beyond the first child additional children have a significant, positive and increasing effect on well-being. Confirmed by evidence from sociology and psychology literature, we consider possible channels which explain these results and discuss their policy implications in the context of fertility, labor market and health outcomes.     

Happy partisans and extreme political views: The impact of national versus local representation on well-being

The political party of elected officials can affect the happiness of the voting public through several different channels. Partisan voters will be happier whenever a member of their party controls political office regardless of the policies implemented. It is hypothesized that congruence between individual party identity and state politician affiliations should have a greater impact on citizen happiness than congruence with politicians at the national level due to results from the literature on Tiebout sorting. It is further hypothesized that individuals with extreme ideological views may report greater happiness as their ideology fulfills basic psychological needs for certainty and structure. Using data from the Generalized Social Survey the effect of party congruence of individuals with national and state politicians on happiness is estimated. The effect of extreme ideological political views on happiness is also estimated. Results find that congruence with presidential party affiliation has a much greater impact on happiness than congruence with national legislative affiliation, gubernatorial, or state legislative affiliation contradicting the hypothesis. Those who possess extreme political views are also found to report higher levels of happiness.     

Well-being and war

Happiness research has dealt with a great number of determinants of well-being but has neglected the effect of war. Wars drastically reduce people??s happiness. The large psychic costs of soldiers, the suffering of civilians, and the material destruction are well documented. An important issue for happiness research is how to calculate the forgone well-being of the people killed in war. Wars may also increase happiness by providing shared experiences, raising national pride, and ??ennobling?? people. ??Combat flow?? increases an individual soldier??s subjective happiness. Deep issues are elicited regarding what type of happiness is legitimate.     

Can entrepreneurship bring happiness? Evidence from China

This paper investigates the relationship between entrepreneurial activities and the happiness of entrepreneurs. We estimate the effects of entrepreneurial decision-making, business experience and other factors on happiness by using China Household Finance Survey data. Our results derived from maximum likelihood estimation methods indicate that entrepreneurial decision-making and entrepreneurial experience affect household happiness significantly. The family well-being is significantly increased if the family is entrepreneurial, and it will be higher if actively entrepreneurial. Both entrepreneurial experience and entrepreneurial investment of time have significantly positive effect on the probability of family well-being. In addition, we find that the mechanism by which entrepreneurship brings happiness to households is through raising household income and wealth, that is, income effects and wealth effects.     

Obesity and happiness

This article provides insight on the relationship between individual obesity and happiness levels. Using the latest available panel data from Germany German Socio-Economic Panel (GSOEP), UK British Household Panel Survey (BHPS), and Australia Household, Income and Labour Dynamics in Australia (HILDA), we examine whether there is statistical evidence on the impact of overweight on subjective well-being. Instrumental Variable (IV) analysis is utilized under the presence of endogeneity, stemming from several explanatory variables. Results indicate that in all three countries obesity has a negative effect on the subjective well-being of individuals. The results also have important implications for the effect of other socio-demographic, economic and individual characteristics on well-being.     

Increasing consumer well-being: risk as potential driver of happiness

This article investigates the relation between risk and individual well-being. We propose a theoretical model of happiness that makes a distinction between ex ante evaluations of happiness and ex post assessments. The main assumptions of the model are tested through three studies based on anchoring vignettes. We show that, even if, ex ante, consumers fear high risk and do not associate it to a high level of happiness, their ex post evaluation of well-being is generally higher when identical consequences result from a high-risk situation than from a low-risk situation. Control over risk-taking reinforces the gap between ex ante and ex post measures of happiness. Thus, our article provides empirical evidence about a positive relation between risk and individual well-being, suggesting that risky experiences have the potential to increase consumer well-being.     

Partisan Social Happiness

We use a new approach to study questions in political economy that relies on data on the subjective well-being of a large sample of people living in the OECD over the period 1975{1992. Controlling for the personal characteristics of the respondents, year and country fixed effects and country-specific time trends, we find that the data describe social happiness functions for left-wing and right-wing individuals where inflation and unemployment enter negatively. We use these functions to test the root assumption of partisan business cycle models. The evidence is consistent with the hypothesis that left-wing individuals care more about unemployment relative to inflation than right-wingers. Interestingly, we find that individuals declare themselves to be happier when the party they support is in power, even after controlling for macroeconomic variables. The effect of politics is large. Finally, we find that these partisan differences cannot be traced back to income differences. That is, it is misleading to assume|as it is done in the previous literature|that the poor (rich) behave similarly to the left (right). For example, inflation and unemployment do not have differential effects across rich and poor and the happiness levels of these two groups are unaffected by the identity of the party in power. Our findings are hard to explain using median voter models but are to be expected in a partisan world.     

Conceptualization and measurement of disability in studies on subjective well-being: a critical review and evidence from the Italian Health Surveys

The main aim of this study is to assess, through a wide literature review, whether the concept of “disability,” as variously formulated, can be considered a good foundation for scientific research on happiness and subjective well-being, as well as the effect of some conceptualizations on the understanding of the relationship between happiness and disability. The literature review includes longitudinal population studies, cross-sectional surveys and longitudinal clinical researches. The empirical part of the study, based on the 2013 Italian Health Interview Survey, shows some examples of the impact of different definitions of disability on the subjective well-being variability. The Italian Health Interview Survey is conducted every 5 years and carried out on a sample of about 60,000 households and 162,000 respondents distributed in 1456 municipalities. Some suggestions for future research, based on a vision of the multifaceted nature of disability, are proposed.     

Inequality and happiness: are Europeans and Americans different?

We study the effect of the level of inequality in society on individual well-being using a total of 123,668 answers to a survey question about “happiness”. We find that individuals have a lower tendency to report themselves happy when inequality is high, even after controlling for individual income, a large set of personal characteristics, and year and country (or, in the case of the US, state) dummies. The effect, however, is more precisely defined statistically in Europe than in the US. In addition, we find striking differences across groups. In Europe, the poor and those on the left of the political spectrum are unhappy about inequality; whereas in the US the happiness of the poor and of those on the left is uncorrelated with inequality. Interestingly, in the US, the rich are bothered by inequality. Comparing across continents, we find that left-wingers in Europe are more hurt by inequality than left-wingers in the US. And the poor in Europe are more concerned with inequality than the poor in America, an effect that is large in terms of size but is only significant at the 10% level. We argue that these findings are consistent with the perception (not necessarily the reality) that Americans have been living in a mobile society, where individual effort can move people up and down the income ladder, while Europeans believe that they live in less mobile societies.     

Income comparison,gender roles and life satisfaction

This article uses data from the German Socio-Economic Panel to analyse the effect of within household income comparison on individual life satisfaction. Our within couple and individual fixed-effects panel estimates suggest that gender roles influence subjective well-being (SWB). A primary breadwinner wife decreases a couple’s individual happiness by eight per cent. The article adds to the findings on interdependence of SWB and hints at negative consequences of traditional gender identity norms for individual happiness.     

Happiness, geography and the environment

In recent years, economists have been using socio-economic and socio-demographic characteristics to explain self-reported individual happiness or satisfaction with life. Using Geographical Information Systems (GIS), we employ data disaggregated at the individual and local level to show that while these variables are important, consideration of amenities such as climate, environmental and urban conditions is critical when analyzing subjective well-being. Location-specific factors are shown to have a direct impact on life satisfaction. Most importantly, however, the explanatory power of our happiness function substantially increases when the spatial variables are included, highlighting the importance of the role of the spatial dimension in determining well-being.     

Income and well-being: an empirical analysis of the comparison income effect

This paper presents an empirical analysis of the importance of ‘comparison income’ for individual well-being or happiness. In other words, the influence of the income of a reference group on individual well-being is examined. The main novelty is that various hypotheses are tested: the importance of the own income, the relevance of the income of the reference group and of the distance between the own income and the income of the reference group, and most importantly the asymmetry of comparisons, i.e. the comparison income effect differing between rich and poor individuals. The analysis uses a self-reported measure of satisfaction with life as a measure of individual well-being. The data come from a large German panel known as GSOEP. The study concludes that the income of the reference group is about as important as the own income for individual happiness, that individuals are happier the larger their income is in comparison with the income of the reference group, and that for West Germany this comparison effect is asymmetric. This final result supports Dusenberry's idea that comparisons are mostly upwards.     

Maximising Happiness?

The measurement of individual happiness challenges the notion that revealed preferences only reliably and empirically reflect individual utility. Reported subjective well-being is a broader concept than traditional decision utility; it also includes concepts like experience and procedural utility. Micro- and macroeconometric happiness functions offer new insights on determinants of life satisfaction. However, one should not leap to the conclusion that happiness should be maximized, as was suggested for social welfare function maximization. In contrast, happiness research strengthens the validity of an institutional approach, such as reflected in the theory of democratic economic policy.     

Natural capital, subjective well-being, and the new welfare economics of sustainability: Some evidence from cross-country regressions

The measurement of natural capital and its management during the economic development process are important aspects of the capital approach to sustainable development. However, the assessment of social welfare in terms of genuine savings (or changes in total wealth per capita) is arguably too limited. This paper tries to make a case for the incorporation of subjective well-being measures in debates about sustainable development by exploring the macro-level relationship between subjective well-being and natural capital in a cross-country setting. It is tested whether natural capital per capita is correlated with subjective well-being in a sample of fifty-eight developed and developing countries, using natural capital data from the World Bank's Millennium Capital Assessment. Bivariate regressions indicate that it is. When multiple regression models are estimated that include (a) major country-level determinants of subjective well-being (GNI per capita, social capital, income distribution, unemployment, inflation), and (b) regional dummy variables for ex-Soviet Union and Latin American countries, the positive correlation remains. The role of data outliers is carefully explored, and the sensitivity of the results to the use of alternative subjective well-being measures (i.e. life satisfaction, happiness, and a combined life satisfaction and happiness index) is investigated. This does not change the nature of the results. The findings arguably strengthen the case for a ‘new welfare economics of sustainability’ that takes subjective well-being measures into account.     

Happiness,income and poverty

There is considerable evidence from a variety of sources to suggest that well-being is a function of relative income. These findings have been used to explain the Easterlin Paradox, whereby a rise in income for all does not lead to a rise in average happiness in a country (even though the cross section relationship between income and happiness is positive). This relativity of utility has led to calls for policy to focus away from GDP. I here first discuss some of the evidence that well-being is indeed relative in income, but then consider two relatively little-analysed issues to suggest that there may continue to be a role for GDP per capita in happiness-based policy: the inequality of subjective well-being, and the specific case of those in income poverty.     

Who benefits from big government? A life satisfaction approach

Which impact does government size have on life satisfaction, and how do effects of bigger government differ between income groups in society? Previous studies typically employed country averages and thus neglected possibly heterogeneous happiness effects between income groups. This paper addresses empirically the effects of government spending on subjective well-being of individuals belonging to different income groups. Our analysis is based on individual data from 25 European countries participating in the European Social Survey. In contrast to most previous studies we take account of the endogeneity between relative income position and reported life satisfaction by an instrumental variable approach. Our results suggest, first, that most government spending categories, including social protection, are on average negatively related to individual well-being. Secondly, estimated marginal effects of health, education and social protection spending at different income levels show that spending increases always have a stronger negative effect on high income groups’ well-being than on low income groups’ life satisfaction. For all government spending categories, marginal happiness effects of higher public spending are clearly negative for income groups at the top.     

Does past unemployment experience explain the transition happiness gap?

The profound economic and political changes of the 1990s had detrimental social effects in many domains of life in post-socialist countries, including diminishing life expectancy and growing unhappiness. Despite economic improvements in the second decade of transition, research has documented that happiness lagged behind. We test whether past unemployment experience can explain this ”transition happiness gap in the context of Ukraine”, a country with a painful delayed transition from planned to market economy. We analyze unique longitudinal data for the period 2003–2012. Current unemployment substantially reduces subjective wellbeing, and the effect is roughly 50% larger for men than for women. The effect of past unemployment is significant, but small in magnitude compared to the effect of current unemployment. However, it does correspond to around 8% of the “transition happiness gap” found by Guriev and Melnikov (2017), suggesting that past unemployment experience can be considered as a partial explanation.