The Easterlin Paradox and the Decline of Social Capital: An Integrated Explanation

23 Pages Posted: 24 May 2008

See all articles by Maurizio Pugno

Maurizio Pugno

University of Cassino - Department of Economics and Law

Date Written: April 1, 2008

Abstract

During the most recent decades people in industrialised countries have reported both a stagnant or even declining subjective well-being, as Easterlin (1974) originally observed, and deterioration in their social and family ties, as Putnam (2000) has claimed. The paper proposes an integrated explanation of these two stylised facts by extending the analysis of the relative income explanation of the Easterlin paradox to social relationships as enjoyable ends of choice. Drawing on the evidence-based results of social psychology, the paper constructs a model whose premises are (i) that individuals produce social relationships by means of relational ability, (ii) that this ability is primarily shaped during infancy and remains largely unpredictable, and (iii) that commercial pressure on children to consume in competition with others may displace the enjoyment of social relationships. The model extends microfoundations to encompass new psychological dimensions. It is thus able to merge individuals' idiosyncratic dynamics - which may deteriorate across generations - with improving economic contextual conditions, and to indicate some new priorities in policy options.

Keywords: Easterlin paradox, social capital, relative income, well-being, happiness, relational goods, relational ability

JEL Classification: A12, D01, I31, J22, O40

Suggested Citation

Pugno, Maurizio, The Easterlin Paradox and the Decline of Social Capital: An Integrated Explanation (April 1, 2008). Available at SSRN: https://ssrn.com/abstract=1132085 or http://dx.doi.org/10.2139/ssrn.1132085

Maurizio Pugno (Contact Author)

University of Cassino - Department of Economics and Law ( email )

Campus Folcara
Cassino, Frosinone 03034
Italy

HOME PAGE: http://mauriziopugno.com/en/

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