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The causal effect of income on life satisfaction and the implications for valuing non-market goods

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  • Ambrey, Christopher L.
  • Fleming, Christopher M.

Abstract

Employing the life satisfaction approach to value physical health, this paper illustrates the use of a subset of windfall income (restricted windfall income) as a substitute for the more conventional household income monetary measure. Results provide no evidence against the exogeneity of restricted windfall income and indicate that the causal effect of income on life satisfaction is substantially higher (and willingness-to-pay estimates substantially lower) when restricted windfall income is used. Further research should be devoted to looking into the presence and size of measurement errors in restricted windfall income. If this bias is large, then the quest for valid and strong instruments will continue.

Suggested Citation

  • Ambrey, Christopher L. & Fleming, Christopher M., 2014. "The causal effect of income on life satisfaction and the implications for valuing non-market goods," Economics Letters, Elsevier, vol. 123(2), pages 131-134.
    • Handle: RePEc:eee:ecolet:v:123:y:2014:i:2:p:131-134
    DOI: 10.1016/j.econlet.2014.01.031
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    2. Clark, Andrew E. & Cotofan, Maria & Layard, Richard, 2022. "The Full Returns to the Choice of Occupation and Education," CEPREMAP Working Papers (Docweb) 2206, CEPREMAP.
    3. Ambrey, Christopher L. & Fleming, Christopher M. & Manning, Matthew, 2016. "The hedonistic cost of the Black Saturday bushfires," 2016 Conference (60th), February 2-5, 2016, Canberra, Australia 235236, Australian Agricultural and Resource Economics Society.
    4. Gundi Knies, 2022. "Effects of Income and Material Deprivation on Children’s Life Satisfaction: Evidence from Longitudinal Data for England (2009–2018)," Journal of Happiness Studies, Springer, vol. 23(4), pages 1469-1492, April.
    5. Asadullah, M. Niaz & Xiao, Saizi & Yeoh, Emile, 2018. "Subjective well-being in China, 2005–2010: The role of relative income, gender, and location," China Economic Review, Elsevier, vol. 48(C), pages 83-101.
    6. Ólafsdóttir, Thorhildur & Ásgeirsdóttir, Tinna Laufey & Norton, Edward C., 2020. "Valuing pain using the subjective well-being method," Economics & Human Biology, Elsevier, vol. 37(C).
    7. Welsch, Heinz & Biermann, Philipp, 2016. "Measuring nuclear power plant externalities using life satisfaction data: A spatial analysis for Switzerland," Ecological Economics, Elsevier, vol. 126(C), pages 98-111.
    8. Miranda, Álvaro & Montero, Rodrigo, 2020. "The determinants of life satisfaction among Chilean workers," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    9. Andreas Heuer & Oliver Rubner, 2014. "Optimizing the Prediction Process: From Statistical Concepts to the Case Study of Soccer," PLOS ONE, Public Library of Science, vol. 9(9), pages 1-9, September.
    10. Shaojie Zhou & Xiaohua Yu, 2017. "Regional Heterogeneity of Life Satisfaction in Urban China: Evidence from Hierarchical Ordered Logit Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(1), pages 25-45, May.
    11. Yuan, Liang & Shin, Kongjoo & Managi, Shunsuke, 2018. "Subjective Well-being and Environmental Quality: The Impact of Air Pollution and Green Coverage in China," Ecological Economics, Elsevier, vol. 153(C), pages 124-138.

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