Happiness and Economics: How the Economy and Institutions Affect Human Well-Being.

233 Pages·2001·1.2 MB·English

by  Bruno S. Frey

Happiness and Economics
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Happiness and Economics
HOW THE ECONOMY AND INSTITUTIONS
AFFECT WELL-BEING
Bruno S. Frey and Alois Stutzer

PRINCETONUNIVERSITYPRESS
PRINCETONANDOXFORD
Copyright©2002 byPrincetonUniversityPress
PublishedbyPrincetonUniversityPress,41WilliamStreet,
Princeton,NewJersey08540
IntheUnitedKingdom:PrincetonUniversityPress,3MarketPlace,
Woodstock,OxfordshireOX201SY
AllRightsReserved
LibraryofCongressControlNumber2001095821
ISBN0-691-06997-2(cloth:alk.paper)
ISBN0-691-06998-0(paper:alk.paper)
BritishLibraryCataloging-in-PublicationDataisavailable
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Printedonacid-freepaper.(cid:1)(cid:2)
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13579108642
(Pbk.)
CONTENTS
Preface vii
Part I:
Setting the Stage
Chapter 1
Happiness 3
Chapter 2
Well-Being and Economics 19
Chapter 3
Personality and Socio-Demographic Influences on Happiness 49
Part II:
Economic Effects on Happiness
Chapter 4
Income 73
Chapter 5
Employment 95
Chapter 6
Inflation 111
Part III:
Political Effects on Happiness

Chapter 7
The Current Politico-Economic Process 121
Chapter 8
Constitution: Popular Referenda and Federalism 133
Chapter 9
Outcome and Process 153
Part IV:
Conclusions
Chapter 10
Happiness Inspires Economics 171
vi CONTENTS
Appendix A 185
Appendix B 191
References 195
Data Sources 215
Index 217
PREFACE
Everybody wants to be happy. There is probably no other goal in
life that commands such a high degree of consensus. “The pursuit
of happiness” is even called upon in the American Declaration of
Independence, and the Kingdom of Bhutan endeavors to maximize
“Gross National Happiness.”
Yet, curiously enough, economists have shied away from dealing
with happiness. They have long considered it to be an “unscientific”
concept. Instead they have based their microeconomic theory on util-
itythathasnomaterialcontentbutthatallowsthesuccessfulanalysis
of human behavior. In the past few years the situation has changed:
A number of economists see an advantage in measuring subjective
well-being as expressed by individuals themselves.
This book reports the state of happiness research from the point of
view of economics. To our knowledge, this is the first book establish-
ing the link between happiness and economics. We discuss how the
concepts of utility and happiness are related and show how micro-
andmacroeconomicconditionsintheformofincome,unemployment,
and inflation affect happiness.
But our text certainly is not restricted to economics. Rather, one of
the main elements is to integrate insights and empirical results from
the other fields involved—in particular, psychology, sociology, and

political science. Happiness research can be considered to be one of
the few examples of successful interdisciplinary research.
Happiness is often seen as a purely personal issue. We argue that
this is not the case. Individual happiness is strongly determined by
the society one lives in. An original contribution of this book is to
empirically show that the more democratic and the more decentral-
ized a country is, the happier people tend to be.
This book builds on the invisible college of scholars of various
disciplines who have paved the way. We particularly want to men-
tion Richard Easterlin, Robert Frank, and Andrew Oswald in eco-
nomics, Daniel Kahneman, Ed Diener, and Tom Tyler in psychology,
Ruut Veenhoven in sociology, and Robert Lane in political science.
viii PREFACE
The many other scholars on whose shoulders we stand are discussed
in the text.
WearegratefultoStephanMeier,HanspeterSchmid,andespecially
Rosemary Brown for helping us in the preparation of the manuscript
and to Matthias Benz and Reto Jegen for their helpful comments.
ACKNOWLEDGMENT
Chapter 8 of this book draws on material contained in our arti-
cle“Happiness,EconomyandInstitutions”publishedinTheEconomic
Journal110(466):918–38.WearegratefultotheRoyalEconomicSociety
for permission to use this material.