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

233 Pages·2001·1.2 MB·English
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Happiness and Economics This page intentionally left blank 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 ThisbookhasbeencomposedinPalatino Printedonacid-freepaper.(cid:1)(cid:2) www.pup.princeton.edu PrintedintheUnitedStatesofAmerica 13579108642 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.

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Curiously, economists, whose discipline has much to do with human well-being, have shied away from factoring the study of happiness into their work. Happiness, they might say, is an "unscientific" concept. This book aims to establish empirically the link between happiness and economics - and between
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