Michael R. Hagerty and Ruut Veenhoven
Social Indicators Research, vol. 64,
2003, pp. 1-27
ABSTRACT
“Will
raising the incomes of all increase the happiness of all?” Intuition says 'yes' but theories of relative
utility caution that the answer may be ‘no’. The theory of relative utility
holds that rises in income will produce at best short-lived gains in happiness. If people’s happiness depends on income
relative to others (social comparisons), or on income relative to their own
past income (adaptive expectations) then raising the incomes of all may not
increase average happiness. In contrast, the theory of absolute utility
predicts that additional income allows each person to fill additional needs,
thus increasing average happiness.
We
test the absolute utility theory against both types of relative utility
theories. Previous tests have been plagued by low statistical power,
which has been incorrectly interpreted as evidence against absolute utility
models. The current study improves
statistical power by including longer time series, by adding 9 nations with low
GDP/capita and (in some analyses) by pooling countries into income tiers. We also apply a model by VanPraag and Kapteyn (1973), which can estimate
separate effects for social comparisons, adaptive expectations, and absolute
income theories.
The results
show no effect for social comparison across countries, but show support for
partial adaptation to new income over a two-year period. Most importantly, increasing national income
does go with increasing national happiness, but the short-term effect on
happiness is higher than the long-term effect for a given rise in income.