Income, Relational Goods and Happiness
Leonardo Becchetti, David Andés Londono Bedoya, Giovanni Trovato

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Our empirical analysis on the determinants of happiness on more than 100,000 individuals from representative samples in 82 world countries supports the hypothesis that the time spent for relationships has a significant and positive impacton happiness. This basic nexus helps to understand new unexplored paths in the so called "happiness-income paradox". To illustrate them we show that income has two main effects on happiness. The first is a positive relative income effect which depends on individual's ranking within domestic income deciles. The second is determined by the relationship between income and relational goods. In principle, more productive individuals may substitute (if the income effect prevails over the substitution effect) working hours with the nonworking time made free for enjoying relationships, when they have strong preferences for the latter. The problem is that these individuals tend to have ties with their income class peers who share with them a high opportunity cost for the time spent for relationships.
Hence, a coordination failure may reduce the joint investment in relational goods (local public goods which need to be co-produced in order to be enjoyed together) and, through this effect, individuals in the highest income deciles may end up with poorer relational goods. The impact of income on happiness through this channel is therefore expected to be negative.

1 Introduction
Economic policy prescriptions always imply an explicit or implicit ranking of priorities incorporated into a given welfare function, which has to be maximised under given resource constraints. The ultimate criteria to define such priorities should be based on the knowledge of factors determining human happiness, since the latter ought to be the main interest and final goal of national and international policymakers' action. The 2003 World Bank report clearly outlines a broad framework for human wellbeing which could inspire policymakers prescriptions along this line (see Figure 1). In such framework it is acknowledged that (in addition to income enabled consumption) human, environmental and social resources are factors which, beyond being in most cases also production inputs, have in themselves, through their direct fruition, a positive impact on individual happiness.
If the World Bank welfare conception is a good description of the reality of the human wellbeing, we expect education and quality of social ties to have significant and positive effects on happiness, independently from their expected contribution to indi vidual productivity and income. While the impact of education on individual wellbeing has been thoroughly explored in the empirical literature (Becker et al., 1997), evidence on the impact of relational goods1 is, to our knowledge, very scarce.2
Several other reasons of interest exist, beyond the lack of empirical work, to focus our research effort on the nexus between relational goods and happiness.
First, the exploration of non monetary causes of happiness is not to be considered outside the realm of economic analysis, as it may be of great importance in understanding the deeper motivation of human economic behaviour including consumption, productivity and entrepreneurship.
Second, growth oriented policy measures, which do not take into account their eventual unintended consequences on non monetary factors affecting individual happiness, may achieve their primary goal (economic growth), but may miss the target of consolidating political consensus if they generate undesirable negative effects on happiness.
In support of the relevance of happiness studies, Bruni and Porta (2004) remind us that the acknowledgement of the importance of the investigation on the wealth-happiness nexus goes back to Malthus (1798), Marshall (1890), Veblen (1899) and, more recently, Dusenberry (1949) and Hirsch (1976). In extreme synthesis, these authors remember that the transformation of the mean (wealth) into the end of any human existence (happiness) is the most important field of investigation for a social scientist.
The acknowledgement of the relevance for economic policies of the research on the determinants of happiness does not imply a positive judgement on its feasibility. One of the leading criticisms on this point is set forth by the approach which argues that empirical analyses should be carried out only on revealed preferences. This approach regards subjective utility as non scientific since it is not objectively measurable (Frey and Stutzer, 2002a).
On this point Frey and Stuzter (2002a) nicely reports Sen's (1986) sentence on the fact that "the popularity of the positivistic view is due to a mixture of an obsessive concern with observability and a peculiar belief that the only human aspect that can be observed" and provide several examples of nonobjectivist analyses such as theoretical studies on emotions (Elster, 1998), self signalling, goal completion mastery and meaning (Lowenstein, 1999) and status (Frank, 1985).
In defence of the reliability of data on self declared happiness, which are at the basis of almost all empirical analyses in this field of the literature, Alesina et al. (2001) recall that psychologists, whose core professional activity is studying well being, extensively use these data. They also observe that there exists a well documented evidence of a positive correlation between self declared happiness and healthy physical reactions such as smiling attitudes (Pavot 1991, Eckman et al., 1990), heart rate and blood pressure responses to stress (Mayman and Manis, 1993), electroencephalogram measures of parefrontal brain activity (Sutton and Davidson, 1997) and of a negative correlation between the same variable and the attitude to commit suicide (Koivumaa et al., 2001).
Our belief on the validity of the above mentioned arguments, and the importance of extending our knowledge into these new areas, motivates our paper.
The paper is divided into seven sections (including introduction and conclusions). In the second section we present a short survey on the nexus between income, relational goods and happiness in two steps. First, we explore the direct link between each of the first two variables and happiness. Second, we investigate the complex nexus among the three, which includes an indirect effect of income on happiness, through the impact that the first variable has on relational goods. In this part of the second section we formulate our hypothesis on direct and indirect effects of income on happiness, and on the direct effect of the intensity and time spent in relational goods on happiness itself, which will be tested in the empirical analysis. In the third section we present descriptive evidence on the positive link between income and happiness, time spent for relational
goods and happiness, and on the nonpositive relationship between income and time spent for relational goods.
In the fourth section we test our hypotheses on the above mentioned links on the World Value Survey database, which includes representative samples from 82 countries in the world,3 and test the robustness of our findings to different (gender, geographical area, religious a±liation) subsample splits.

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