Stefan Boes, Kevin E Staub, Rainer Winkelmann. Relative status and satisfaction

Stefan Boes, Kevin E Staub, Rainer Winkelmann. Relative status and satisfaction

A key result of the previous literature on income and reported life satisfaction is the relevance of income comparisons. People appear to care not only for absolute but also for relative income, usually defined in terms of distance to a reference income level (Clark and Oswald, 1996; McBride, 2001; Easterlin, 2001; Ferrer-i-Carbonell, 2005; Luttmer, 2005; Dynan and Ravina, 2007; Clark et al., 2008). A more recent literature has begun to investigate the role of income as a provider of status whereby individuals derive utility from their rank in a comparison distribution (Brown et al., 2008; Clark et al., 2009). Psychological justifications for such status effects are provided by Paducci’s (1968) Range Frequency Theory. As Brown et al. (2008) point out, relative income and income rank, although related, are distinct concerns. For example, if a person’s income is 10 percent below mean, then the income rank (percentile) can take any value between 0 and 50 percent even in a simple symmetric distribution, depending among other things on the variance of income.



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Keywords: Economics of Happiness

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