Does the Choice of Well-Being Measure Matter Empirically? An Illustration with German Data

43 Pages Posted: 8 Nov 2014

See all articles by Koen Decancq

Koen Decancq

University of Antwerp; KU Leuven - Center for Economic Studies; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE); University of Mannheim - Mannheim Centre for European Social Research (MZES)

Dirk Neumann

University of Cologne

Abstract

We discuss and compare five measures of individual well-being, namely income, an objective composite well-being index, a measure of subjective well-being, equivalent income, and a well-being measure based on the von Neumann-Morgenstern utilities of the individuals. After examining the information requirements of these measures, we illustrate their implementation using data from the German Socio-Economic Panel (SOEP) for 2010. We find sizeable differences in the characteristics of the individuals identified as worst off according to the different well-being measures. Less than 1% of the individuals belong to the bottom decile according to all five measures. Moreover, the measures lead to considerably different well-being rankings of the individuals. These findings highlight the importance of the choice of well-being measure for policy making.

Keywords: von Neumann-Morgenstern utility function, equivalent income, life satisfaction, composite well-being index, income, worst off, Germany

JEL Classification: D31, D63, I30

Suggested Citation

Decancq, Koen and Neumann, Dirk, Does the Choice of Well-Being Measure Matter Empirically? An Illustration with German Data. IZA Discussion Paper No. 8589, Available at SSRN: https://ssrn.com/abstract=2520744

Koen Decancq (Contact Author)

University of Antwerp ( email )

Prinsstraat 13
Antwerp, 2000
Belgium

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium

University of Mannheim - Mannheim Centre for European Social Research (MZES) ( email )

D-68131 Mannheim
Germany

Dirk Neumann

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

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