Handbook on the Economics of Happiness
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Handbook on the Economics of Happiness

Edited by Luigino Bruni and Pier Luigi Porta

This book is a welcome consolidation and extension of the recent expanding debates on happiness and economics. Happiness and economics, as a new field for research, is now of pivotal interest particularly to welfare economists and psychologists. This Handbook provides an unprecedented forum for discussion of the economic issues relating to happiness. It reviews the more recent literature and offers the interested reader an insight into the vast scope of the field in terms of the theory, its applications and also experimental design. The Handbook also gives substantial indications as to the future direction of research in the field, with particular regard to policy applications and developing an economics of interpersonal relations which includes reciprocity and social interaction theory.
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Chapter 14: The Subjective Well-being Paradox: A Suggested Solution Based on Relational Goods

Maurizio Pugno


Maurizio Pugno* 1. Introduction ‘Subjective well-being’, often called happiness, is arousing increasing interest among economists and economic psychologists through resumed study of the Benthamite approach to utility (Ng 1978; Kahneman et al. 1999; Easterlin 2001; Frey and Stutzer 2002; Layard 2003; and symposia in the Economic Journal 1997, and in the Journal of Economic Behavior and Organization 2001).1 An underlying reason for this interest is that per capita income has increasingly become an overoptimistic proxy for well-being, especially in the affluent economies. The most systematic evidence on this problem is provided by survey research on self-reported happiness (Veenhoven 1994). Further significant and more dramatic evidence emerges from the proliferation of specific forms of malaise such as mental depression and suicides. A ‘subjective well-being paradox’ can be more precisely identified in the richest countries during recent decades. Let us first define ‘subjective wellbeing’ (SWB) as including both a cognitive judgement on satisfaction with one’s current life, and one’s prevalent affective state. A paradox arises because the various indices of SWB exhibit little improvement or even deterioration, while per capita income, which is the main proxy for material well-being, displays a definite rising trend. The paradox is heightened by the fact that the inability of income to yield SWB has not substantially discouraged individuals from supplying their labour. In other words, technical progress is, by and large, not used to achieve more leisure and thus decelerate income growth. By contrast, effort, if not...

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