Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
University of Washington
Jorge Rojas-Vallejos
2015
2015
1 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Content
Introduction
Happiness in economics
Results
Conclusions
2015
2 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
Remark
Estimate the willingness to pay for a local public good, air quality.
Time varies Location remains fixed
2015
3 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
Remark
Estimate the willingness to pay for a local public good, air quality.
Time varies Location remains fixed
Traditional methods of estimation:
1
Travel-cost models
2015
3 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
Remark
Estimate the willingness to pay for a local public good, air quality.
Time varies Location remains fixed
Traditional methods of estimation:
1
Travel-cost models
Hedonic regressions
2015
3 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
Remark
Estimate the willingness to pay for a local public good, air quality.
Time varies Location remains fixed
Traditional methods of estimation:
1
Travel-cost models
Hedonic regressions
2015
3 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
Remark
Estimate the willingness to pay for a local public good, air quality.
Time varies Location remains fixed
Traditional methods of estimation:
1
Travel-cost models
Hedonic regressions
2015
3 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
The goal of this study is to obtain the average marginal rate of
substitution between income and air quality AMRSYQ . Levinson
calls this term for shortness WTP. Strictly speaking, he estimates:
2015
4 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
The goal of this study is to obtain the average marginal rate of
substitution between income and air quality AMRSYQ . Levinson
calls this term for shortness WTP. Strictly speaking, he estimates:
The trade-off between income and air quality that will leave people,
on average, equally happy.
Income
0
0
Quality
Jorge Rojas-Vallejos (UW)
2015
4 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Introduction
The goal of this study is to obtain the average marginal rate of
substitution between income and air quality AMRSYQ . Levinson
calls this term for shortness WTP. Strictly speaking, he estimates:
The trade-off between income and air quality that will leave people,
on average, equally happy.
Income
0
0
Quality
Jorge Rojas-Vallejos (UW)
2015
4 / 28
Index
Introduction
Happiness in economics
Data
Variables
Happiness
Methodology
Results
Conclusions
Index
Introduction
Happiness in economics
Data
Variables
Happiness
Air Quality
Methodology
Results
Conclusions
Index
Introduction
Happiness in economics
Data
Methodology
Variables
Happiness
Air Quality
Weather
Results
Conclusions
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Variables
Happiness
Air Quality
Weather
2015
5 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Variables
Happiness
Air Quality
Weather
2015
5 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Variables
Happiness
Air Quality
Weather
2015
5 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Variables
Happiness
Air Quality
Weather
2015
5 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
Paradox
Richard Easterlin (1975) stated that happiness does not increase
with income across countries or within a country over time, but it
does increase with income across individuals within a country at
any given point in time.
2015
6 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
Paradox
Richard Easterlin (1975) stated that happiness does not increase
with income across countries or within a country over time, but it
does increase with income across individuals within a country at
any given point in time.
The evidence is mixed about this! However, there are more evidence
supporting the paradox.
2015
6 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
Suppose the paradox is true, then there are two possible explanations:
1
2015
7 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
Suppose the paradox is true, then there are two possible explanations:
1
2015
7 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
2015
8 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
2015
8 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
2015
8 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
There are a few examples of applications of these happiness measures:
I Airport noise
I Flood disasters
I Terrorism
I Weather & climate
2015
9 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
There are a few examples of applications of these happiness measures:
I Airport noise
I Flood disasters
I Terrorism
I Weather & climate
The problem...
2015
9 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
There are a few examples of applications of these happiness measures:
I Airport noise
I Flood disasters
I Terrorism
I Weather & climate
The problem... they use annual average measures of the public
good...
2015
9 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
There are a few examples of applications of these happiness measures:
I Airport noise
I Flood disasters
I Terrorism
I Weather & climate
The problem... they use annual average measures of the public
good... this may induce bias...
2015
9 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
There are a few examples of applications of these happiness measures:
I Airport noise
I Flood disasters
I Terrorism
I Weather & climate
The problem... they use annual average measures of the public
good... this may induce bias... due to heterogeneity
2015
9 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Happiness in Economics
There are a few examples of applications of these happiness measures:
I Airport noise
I Flood disasters
I Terrorism
I Weather & climate
The problem... they use annual average measures of the public
good... this may induce bias... due to heterogeneity
Remark
Aggregating environmental quality across entire countries masks
much of its heterogeneity!
2015
9 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
2015
10 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
2015
10 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
2015
10 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
No habituation bias. Any valuation derived from daily fluctuations will omit this effect.
2015
10 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
No habituation bias. Any valuation derived from daily fluctuations will omit this effect.
2015
10 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Disadvantages
1
2015
11 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Disadvantages
1
2015
11 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Disadvantages
1
As we know:
Happiness
Income
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Disadvantages
1
As we know:
Happiness
Income
2015
11 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
2015
12 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
2015
12 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
Question
Taken all together, how would you say things are these days? Would
you say that you are very happy (3), pretty happy (2), or not too happy
(1)?
2015
12 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
2015
13 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
2015
14 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
2015
15 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Data
2015
15 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Methodology
Focus on PM10.
6,035 useful observations out of 19,491.
Regression model:
Hijt = Pjt + ln Yi + X 0ijt + j + t + j yeart + ijt
(1)
where:
i: respondent,
j: location,
t: date.
2015
16 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Methodology
Average Marginal Rate of Substitution between pollution and income,
dH = 0 = dP +
1
dY + others = 0
Y
Fixing dX = d = d = 0, then:
Y
= Y
P dH=0
(2)
Equation (2) depends upon the functional form, but this is quite robust to different specifications.
2015
17 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Methodology
Y
is the average MRSYQ also called WTP.
P dH=0
(3)
Remark
This is the trade-off between income and air quality that will leave
people, on average, equally happy.
2015
18 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Methodology
2015
19 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Methodology
2015
19 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Methodology
2015
19 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Results
2015
20 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Results
2015
21 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Results
2015
22 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Results
2015
23 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Results
Remark
For the average income level, an individual is willing to sacrifice
$ 35 to improve in one air quality for one day, on average, holding
all else constant.
Jorge Rojas-Vallejos (UW)
2015
24 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
1. This new approach is a complement to (not a replacement of) existing methods,
2015
25 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
1. This new approach is a complement to (not a replacement of) existing methods,
2. It does not underestimate the value for air quality as travel-cost
and hedonic methods,
2015
25 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
1. This new approach is a complement to (not a replacement of) existing methods,
2. It does not underestimate the value for air quality as travel-cost
and hedonic methods,
3. It avoids the strategic response bias. Robust to different samples of the data and empirical specifications,
2015
25 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
1. This new approach is a complement to (not a replacement of) existing methods,
2. It does not underestimate the value for air quality as travel-cost
and hedonic methods,
3. It avoids the strategic response bias. Robust to different samples of the data and empirical specifications,
4. Happiness is NOT sensitive to local levels of undetectable pollutants (e.g. CO),
2015
25 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
1. This new approach is a complement to (not a replacement of) existing methods,
2. It does not underestimate the value for air quality as travel-cost
and hedonic methods,
3. It avoids the strategic response bias. Robust to different samples of the data and empirical specifications,
4. Happiness is NOT sensitive to local levels of undetectable pollutants (e.g. CO),
5. There is sufficient evidence to support that there is a substantial
trade-off between income and environmental quality - a compensating differential for pollution.
Jorge Rojas-Vallejos (UW)
2015
25 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Health
Air pollution
Subjective Well-being
Property
Conclusions
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Health
Air pollution
Subjective Well-being
Property
Conclusions
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
Health
Air pollution
NEW
Subjective Well-being
Property
Jorge Rojas-Vallejos (UW)
2015
26 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
Conclusions
2015
27 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
2015
28 / 28
Index
Introduction
Happiness in economics
Data
Methodology
Results
Conclusions
2015
28 / 28