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Inspiring Economics

Human Motivation in Political Economy

Bruno S. Frey

Bruno S. Frey illustrates what he perceives to be the inspirational quality of economics and how this differs from the type of economics studied in many academic institutions. He introduces insights into economics from a psychological perspective, dealing with issues such as transformation of anomalies, identification in democracy and crowding effects, and focuses on intrinsic motivation and how it is undermined.
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Chapter 10: What are the Sources of Happiness? with Alois Stutzer

Bruno S. Frey


HAPPINESS MATTERS To analyse the sources of people’s happiness is an issue of major interest. Accordingly, there has been a constant enquiry into the determinants of individual well-being in the social sciences. One of the crucial questions has been what kind of institutions lead to people being happier. In particular, the role of democratic institutions in people’s well-being has been speculated about. Over the last few years, extensive econometric research has convincingly demonstrated the beneficial effects of democratic institutions on political outcomes (see Chapter 9). The more developed the possibilities for direct political participation via popular initiatives and referenda are, the more strongly government policy reflects the preferences of the voters. These results are based mainly on cross-sectional data for the United States and Switzerland, the two countries with by far the greatest number of referenda. This chapter goes one step further. It is argued that the more developed direct democracy is, the happier the citizens are. The analysis moreover suggests that the higher level of happiness associated with more extensive democracy is partly due to the utility produced by the political process itself, and is not only due to favourable political outcomes. In addition to institutional determinants, the influence of economic variables on happiness is shown. Unemployment considerably lowers happiness. Higher income raises subjective well-being, but not by very much. In addition, the effects of demographic variables, such as age, sex and family status on happiness, are demonstrated. The next section presents a short overview of...

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