Income and Happiness: New Results from Generalized Threshold and Sequential Models

32 Pages Posted: 6 Jul 2004

See all articles by Stefan Boes

Stefan Boes

University of Lucerne

Rainer Winkelmann

University of Zurich - Statistics and Empirical Economic Research; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Date Written: June 2004

Abstract

Empirical studies on the relationship between income and happiness commonly use standard ordered response models, the most well-known representatives being the ordered logit and the ordered probit. However, these models restrict the marginal probability effects by design, and therefore limit the analysis of distributional aspects of a change in income, that is, the study of whether the income effect depend on a person's happiness. In this paper we pinpoint the shortcomings of standard models and propose two alternatives, namely generalized threshold and sequential models. With data of two waves of the German Socio-Economic Panel, 1984 and 1997, we show that the more general models yield different marginal probability effects than standard models.

Keywords: ordered response models, marginal effects, subjective well-being

JEL Classification: C25, I31

Suggested Citation

Boes, Stefan and Winkelmann, Rainer, Income and Happiness: New Results from Generalized Threshold and Sequential Models (June 2004). Available at SSRN: https://ssrn.com/abstract=561724

Stefan Boes

University of Lucerne ( email )

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Lucerne, Lucerne CH - 6002
Switzerland

Rainer Winkelmann (Contact Author)

University of Zurich - Statistics and Empirical Economic Research ( email )

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CH-8001 Zurich
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IZA Institute of Labor Economics ( email )

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+49 228 3894 510 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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