Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80431
Authors: 
Strulik, Holger
Year of Publication: 
2013
Series/Report no.: 
Discussion Papers, Center for European Governance and Economic Development Research 171
Abstract: 
In this paper I investigate the nexus between life time utility (life satisfaction) and income predicted by the standard model of endogenous economic growth under different behavioral assumptions. The solution rationalizes why the empirical association between income and life satisfaction is approximately log-linear. I show that the solution is observationally equivalent when individuals compare their consumption (i) with others, (ii) with their own past consumption achievements, and (iii) not at all (ordinary preferences). This finding suggests that the observed slope of the income - life satisfaction curve is uninformative about human behavior driven by referencedependent utility. In particular, the hypothesis that the flattening of the life satisfaction curve at high income levels indicates that people are comparing their consumption too much with others or own past achievements is not supported by the workhorse model of endogenous economic growth.
Subjects: 
status
habit formation
happiness
economic growth
JEL: 
D90
E21
O40
Document Type: 
Working Paper

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