Direct evidence on income comparisons and their welfare effects

• Published in: Journal of economic behavior & organization Vol. 72; no. 1; pp. 408 - 424
• Main Author: Senik, Claudia
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.10.2009; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Economic Behavior & Organization
• Subjects: Benchmarking; Benchmarks; Comparative analysis; Demand for income redistribution; Impact analysis; Income; Income comparisons; Income redistribution; Internal and external benchmarks; Quantitative Finance; Social comparison; Studies; Subjective well-being; Subjective well-being Income comparisons Demand for income redistribution Internal and external benchmarks Transition; Subjective wellbeing; Subjectivity; Transition; Welfare; Welfare economics; Welfare effects; Well-being; D63; Subjective well-being; D31; P3; I31; C25; Internal and external benchmarks; J31; Demand for income redistribution; O57; Transition; Income comparisons; Z13
• ISSN: 0167-2681; 1879-1751; 0167-2681
• DOI: 10.1016/j.jebo.2009.04.019

This paper provides direct evidence that income comparisons exert a significant impact on subjective well-being. It also evaluates the relative importance of different types of benchmarks. Internal comparisons to one's own past living standard outweigh any other comparison benchmarks. Local comparisons (to one's parents, former colleagues or high school mates) are more powerful than self-ranking in the social ladder. The impact of comparisons is asymmetric: under-performing one's benchmark always has a greater welfare effect than out-performing it (in absolute value). Comparisons, which reduce satisfaction also increase the demand for income redistribution, but there, the relative impact of subjective ranking is preponderant.