Status, Happiness, and Relative Income

This may make you happiness types happy

By:	John Beath (University of St. Andrews) Felix FitzRoy (University of St. Andrews and IZA)
URL:	http://d.repec.org/n?u=RePEc:iza:izadps:dp2658&r=cbe
Models of status based on Frank’s (1985) count of the number of people with lower conspicuous consumption are inconsistent with the extensive empirical literature on happiness and well-being. The alternative approach to consumption interaction which uses some form of relative income has been developed in various contexts. These predict that a representative agent’s well-being will increase with real income or consumption. However, this is again inconsistent with the time-series evidence for advanced economies. In this paper we combine a simple model of relative income with a distribution of ability that correctly predicts both time series results of near constant utility, and the positive, concave crosssectional relation between income, working time and happiness.