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Direct evidence on income comparisons and their welfare effects

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Senik, Claudia

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Abstract This paper provides direct evidence that income comparisons exert a significant impact on subjective well-being. It also evaluates the relative importance of different types of benchmarks. Internal comparisons to one's own past living standard outweigh any other comparison benchmarks. Local comparisons (to one's parents, former colleagues or high-school mates) are more powerful than self-ranking in the social ladder. The impact of comparisons is asymmetric: under-performing one's benchmark always has a greater welfare effect than out-performing it (in absolute value). Comparisons which reduce satisfaction also increase the demand for income redistribution, but there, the relative impact of subjective ranking is preponderant.
Keywords transition
Classification Sociology of Economics; Social Psychology
Free Keywords C25; D31; D63; I31; J31; O57; P3; Z13; Subjective well-being; Income comparisons; Demand for income redistribution; Internal and external benchmarks
Document language English
Publication Year 2009
Page/Pages 408–424 p.
Journal Journal of Economic Behavior & Organization, 72 (2009) 1
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)