Happiness, Equivalent Incomes and Respect for Individual Preferences

Abstract

In this paper, we study interpersonal comparisons of wellbeing. We show that using subjective wellbeing (SWB) levels can be in conflict with individuals' judgments about their own lives. We propose therefore an alternative wellbeing measure in terms of equivalent incomes that respects individual preferences. We show how SWB surveys can be used to derive the ordinal information about preferences needed to calculate equivalent incomes. We illustrate our approach with Russian panel data (RLMS-HSE) for the period 1995-2003 and compare it to standard wellbeing measures such as expenditures and SWB. We find that different groups are identified as worst off.For nothing is more certain, than that despair has almost the same effect on us with enjoyment, and that we are no sooner acquainted with the impossibility of satisfying any desire, than the desire itself vanishes.David Hume, A Treatise of Human Nature

Measuring Well-being: A Multidimensional Index Integrating Subjective Well-being and Preferences

“…A comparable analysis in Decancq, Fleurbaey, and Schokkaert (2015a) finds the opposite health result using Russian data-a larger weight on health is found for the preferences of the old. Far from being a problematic inconsistency, these contrasting findings highlight the central argument for taking account of heterogeneous preferences.…”

“…A detailed description of these variables is given in Section 3.2. Section 3.3 explains the estimation of preferences in step 1 using a life satisfaction regression approach, a method suggested by Schokkaert (2007) and implemented in Decancq, Fleurbaey, and Schokkaert (2015a), using micro level data from 12 waves of the BHPS. Section 3.4 discusses the parameters of the preference index derived from the life satisfaction model to implement step 2, and presents an analysis of different parts of the preference-sensitive well-being distribution once individuals are ranked according to step 3.…”

“…2 However, it does use the lines of argumentation presented in Schokkaert (2007) and Decancq, Fleurbaey, and Schokkaert (2015a) that useful components of the SWB approach can be combined with a non-welfarist concern for the underlying distribution of attainments in dimensions of wellbeing.…”

Putting measures of individual well-being to use for ex-ante policy evaluation

“…In this paper, we follow Decancq et al (2015bDecancq et al ( , 2017 and Schokkaert et al (2011) and retrieve information about individual preferences from life satisfaction regressions. 9 This method is explained in the following subsection.…”

“…This is in line with the idea that not accounting for factors related to personality traits might bias the estimates of the life satisfaction regressions. However, since the estimates of all coefficients go down, the effect on the marginal rates of substitution is smaller than the effect on life 12 The method is similar to that used by Decancq et al (2015b). Detailed results are available upon request from the authors.…”