Free University Berlin
Overall Title “New Topics in Happiness and Economics”
Monday November 10, 6.00pm - 7.30pm.
“Income Comparisons, the Easterlin Paradox and Public Policy”
There is now a wide variety of empirical work suggesting that utility functions are relative with respect to income. This introduces externalities: the more you earn, the less well-off I am. This lecture will review some of this evidence (survey-based, experimental, and neurological), and underline some of the implications for microeconomic analysis. Finally, if the Easterlin paradox holds (higher income for everybody makes no-one better off), should policy necessarily be directed to non-income fields (marriage, jobs, social capital…) or are the same kind of social comparisons found in these domains also?
Thursday November 13, 6.00pm - 7.30pm
“Self-Employment, Well-Being, Rents and Matching”
Self-Employment poses something of a problem for well-being research. Across OECD countries, self-employment rates are typically in the low double figures. However, three to four times as many people say that they would prefer self-employment to employment. In addition, job satisfaction data systematically finds that the self-employed are more satisfied at work than are employees. Two explanations of this paradox are proposed and evaluated empirically: that capital constraints produce rents in the labour market (for the self-employed), and that there is sorting on the labour market, with the self-employed having different preferences or abilities from the employed.
Monday November 17, 6.00pm - 7.30pm (Research Seminar in Economics)
“Winning Big but Feeling No Better? The Effect of Lottery Prizes on Physical and Mental Health”
We use British Household Panel Survey data to explore the impact of income on a number of health outcomes: general health status, mental health, physical health problems, and behavioural variables (alcohol consumption and smoking). We use lottery winnings to identify the causal effect of income on health, as these are largely unanticipated and therefore exogenous. Positive income shocks have no significant effect on general health and a large positive effect on mental health, supporting recent findings in the literature. This result seems paradoxical on two levels. First, there is a well-known status gradient in health in cross-section data, and, second, general health should reflect mental health, so that both variables should move in the same direction. We propose a solution to the first apparent paradox by insisting on the endogeneity of income. For the second, we show that income actually has a negative effect on risky behaviours: lottery winners smoke more and engage in more social drinking. General health picks up both mental and behavioural elements, which move in opposite directions following a positive income shock. This paper presents the first microeconomic analogue of work highlighting the negative health consequences of good macroeconomic conditions.