Alois Stutzer

What can Economists Learn from Happiness Research

Over the past few years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

The role of income aspirations in individual happiness

Does individual well-being depend on the absolute level of income and consumption or is it relative to ones aspirations? In a direct empirical test, it is found that higher income aspirations reduce peoples utility, ceteris paribus. Individual data on reported satisfaction with life are used as a proxy measure for utility, and income evaluation measures are applied as proxies for peoples aspiration levels. Consistent with processes of adaptation and social comparison, income aspirations increase with peoples income as well as with the average income in the community they live in.

Latent entrepreneurship across nations

The paper studies latent entrepreneurship across nations. There are three main findings. First, large numbers of people in the industrial countries say they would prefer to be self-employed. Top of the international ranking of entrepreneurial spirit come Poland (with 80% saying so), Portugal and the USA; bottom of the table come Norway (with 27% saying so), Denmark and Russia. Second, for individuals the probability of preferring to be self-employed is strongly decreasing with age, while the probability of being self-employed is strongly increasing with age. Third, we show that self-employed individuals have noticeably higher job satisfaction than the employed, so peoples expressed wish to run their business cannot easily be written off as mistaken. We speculate on why so much entrepreneurial spirit lies dormant.

Introducing Procedural Utility: Not only What, but also How Matters

People not only care about outcomes, they also value the procedures which lead to the outcomes. Procedural utility is a potentially important source of human well-being. This paper aims at introducing the concept of procedural utility into economics, and argues that it should be incorporated more widely into economic theory and empirical research. Three building blocks of a concept of procedural utility are outlined and it is suggested how procedural utility can be fruitfully integrated. Evidence from a broad range of social sciences is reviewed in order to show that procedural utility is a relevant concept for economics.

Stress that Doesn't Pay: The Commuting Paradox

People spend a lot of time commuting and often find it a burden. According to economics, the burden of commuting is chosen when compensated either on the labor or on the housing market so that individuals’ utility is equalized. However, in a direct test of this strong notion of equilibrium, we find that people with longer commuting time report systematically lower subjective well-being. Additional empirical analyses do not find institutional explanations of the empirical results that commuters systematically incur losses. We discuss several possibilities of an extended model of human behavior able to explain this ‘commuting paradox’.

Calculating Tragedy: Assessing the Costs of Terrorism

The trends and consequences of terrorist activities are often captured by counting the number of incidents and casualties. More recently, the effects of terrorist acts on various aspects of the economy have been analyzed. These costs are surveyed and put in perspective. As economic consequences are only a part of the overall costs of terrorism, possible approaches for estimating the utility losses of the people affected are discussed. Results using the life satisfaction approach, in which individual utility is approximated by self-reported subjective well-being, suggest that peoples utility losses may far exceed the purely economic consequences.

Is Volunteering Rewarding in Itself

Volunteering constitutes one of the most important pro-social activities. Following Adam Smith, helping others is the way to higher individual well-being. This view contrasts with the selfish utility maximizer who avoids costs from helping others. The two rival views are studied empirically. We find robust evidence that volunteers are more satisfied with their life than non-volunteers. Causality is addressed taking advantage of a natural experiment: the collapse of East Germany and its infrastructure of volunteering. People who accidentally lost their opportunities for volunteering are compared to people who experienced no change in their volunteer status.

The role of social work norms in job searching and subjective well-being

Social norms are usually neglected in economics, because they are to a large extent enforced through nonmarket interactions and difficult to isolate empirically. In this paper, we offer a direct measure of the social norm to work and we show that this norm has important economic effects. The stronger the norm, the more quickly unemployed people find a new job. This behavior can be explained by utility differences, probably due to social pressure. Unemployed people are significantly less happy than employed people and their reduction in life satisfac-tion is the larger, the stronger the norm is. (JEL: I31, J64) Copyright (c) 2004 The European Economic Association.

Beyond Outcomes: Measuring Procedural Utility

BEYOND OUTCOMES MEASURING PROCEDURAL UTILITY by Bruno S. Frey and Alois Stutzer ∗ (University of Zurich) 12 April 2002 Abstract: People not only obtain utility from actual outcomes but also from the conditions which lead to these outcomes. Procedural utility and outcome utility can be distinguished and empirically measured. People gain procedural utility from participating in the political decision- making process itself, irrespective of the outcome. Nationals enjoy both outcome and process utility, while foreigners are excluded from political decision- making and therefore cannot enjoy the corresponding procedural utility. Utility is measured by individuals’ reported subjective well- being. We find that participation rights provide more procedural utility in terms of a feeling of self-determination and influence than actual participation. (96 words) JEL classification: D60, D63, D72, H73, I31 Keywords: Procedural utility, subjective well-being, political participation, participation rights Address: Institute for Empirical Research in Economics, University of Zurich, Bluemlisalpstrasse 10, 8006 Zurich, Tel.: 0041-1-634 37 29, Fax: 0041-1-634 49 07, E-mail: bsfrey@iew.unizh.ch, astutzer@iew.unizh.ch. We wish to thank Matthias Benz, Robert Cooter, Rafael Di Tella, Lorenz Gotte, Reto Jegen, Robert Lane, Marc Le Menestrel, Robert MacCulloch, Felix Oberholzer-Gee and Tom Tyler for their helpful comments.

Happiness Research: State and Prospects

This paper intends to provide an evaluation of where the economic research on happiness stands and in which interesting directions it might develop. First, the current state of the research on happiness in economics is briefly discussed. We emphasize the potential of happiness research in testing competing theories of individual behavior. Second, the crucial issue of causality is taken up illustrating it for a particular case, namely whether marriage makes people happy or whether happy people get married. Third, happiness research is taken up as a new approach to measuring utility in the context of cost-benefit analysis.