A Theory of Relativity of Cultures, Incomes and Happiness

The concepts of cultural relativism (introduced by Franz Boas) and hedonic relativism (introduced by Richard Easterlin) are reference points of a theory that addresses international differences in per capita incomes and variations in the contribution of income to happiness. The pivotal concept in this study is diligence. Painstaking effort, that is, diligence, is needed to produce high quality goods and services. The downside of such efforts lies in the psychological burden that comes with the necessary high level of self-control of the individual worker and the required organisational feedback mechanisms in firms. We present two competing views concerning the determination of diligence. The first, anthropologically inspired, hypothesis states that a society’s cultural forces such as cognitive styles, organisational traditions and religion determine the level of diligence. One implication of this perspective is that societies can have income levels that are either too high or too low relative to the welfare optimum. The second view holds that diligence is determined in a maximising way, balancing the gains and pains of diligence in the economic realm. Cross-country data are studied in order to assess the two competing views. The econometric evidence indicates that it is the maximising view that can explain key aspects of the data. JEL: D63, P5, Z1