Direct evidence on income comparisons and their welfare effects

Pre-print, Working paper: This paper provides direct evidence that comparisons exert a significant effect 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.

Author(s)

Claudia Senik

Date of publication
  • 2008
Keywords JEL
C25 D31 D63 I31 J31 O57 P3 Z13
Keywords
  • Subjective well-being
  • Income comparisons
  • Demand for income redistribution
  • Internal and external benchmarks
  • Transition
Internal reference
  • PSE Working Papers n°2007-19
Version
  • 1