Measuring Welfare: Latent Variable Models for Happiness and Capabilities in the Presence of Unobservable Heterogeneity

Posted: 20 Nov 2014

See all articles by Paul Anand

Paul Anand

The Open University - Department of Economics; London School of Economics & Political Science (LSE) - Centre for Philosophy of Natural and Social Science (CPNSS); IZA; University of Oxford

Jaya Krishnakumar

University of Geneva

Ngoc Tran

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: 2011

Abstract

The paper contributes to the operationalisation of the capabilities approach to welfare economics by developing and analyzing data on the freedoms of adults in Argentina. Specifically, it reports on the development and delivery of a survey instrument for measuring capabilities, calculates for each respondent a Nehring-Puppe type index of capabilities and examines the distribution of index scores. The main analytic part of the paper then goes on to develop a generalized linear latent and mixed model (GLLAMM) for assessing the impact of capabilities on life satisfaction, in which allowance is made for (i) unobserved heterogeneity and (ii) possible endogeneity, by introducing latent individual effects and by instrumenting capability variables using income and other socio- economic variables. Our empirical results show that empathy, self-worth, goalautonomy, discrimination, safety and stress are statistically significant determinants of life satisfaction, in a decreasing order of importance. The paper concludes by suggesting that, if replicated, the findings have profound implications for the conceptualisation and evaluation of economic progress.

Keywords: Capabilities Freedoms, GLLAMM, Happiness, Instrumental variables, Multi-dimensionality, Unobserved heterogeneity

JEL Classification: C35, I03

Suggested Citation

Anand, Paul and Krishnakumar, Jaya and Tran, Ngoc, Measuring Welfare: Latent Variable Models for Happiness and Capabilities in the Presence of Unobservable Heterogeneity (2011). Journal of Public Economics, Vol. 95, 2011, Available at SSRN: https://ssrn.com/abstract=2527121

Paul Anand

The Open University - Department of Economics ( email )

Walton Hall
Milton Keynes, MK7 6AA
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Philosophy of Natural and Social Science (CPNSS) ( email )

United Kingdom

IZA ( email )

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Jaya Krishnakumar (Contact Author)

University of Geneva ( email )

40 Bd. du Pont d'Arve
Genève 4, CH - 1211
Switzerland

Ngoc Tran

University of Toulouse 1 - Toulouse School of Economics (TSE)

Place Anatole-France
Toulouse Cedex, F-31042
France

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
300
PlumX Metrics