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The relationship between income, wealth, and life satisfaction


Hitaj, Ermal (2010). The relationship between income, wealth, and life satisfaction. Master's thesis / Doctoral dissertation.


This dissertation inquires into the relationship between income, aspirations, and life satisfaction in post-transition Russia. It first explores the channels through which adaptation and social comparison contribute to higher income aspirations. The results show that social comparison is a strong agent in shaping aspirations, while the effect of adaptation is relatively weak. Subsequently, the dissertation tests for the effect of aspirations on two separate satisfaction indices, satisfaction with life and satisfaction with economic conditions. This dissertation uses a Chamberlain random-effects ordered probit estimation to control for time-invariant unobservable individual traits. In contrast to previous studies, the results suggest that increases in aspirations have a positive effect on life satisfaction. This dissertation argues that this is caused by the expectations contained in income aspirations. Higher aspirations reflect an increase in needs commensurate to changes in own and others' income, but they also reflect improved income expectations based on the information provided by the present income of relevant others. The improved outlook embedded in the higher income aspirations causes the latter to have a positive effect on life satisfaction. This suggests that, ten years into the transition process, the reaction patterns of life satisfaction in Russia differ substantially from those in developed countries. While the relationship between life satisfaction and income or institutions has recently received a lot attention, the relationship between life satisfaction and accumulated wealth remains unexplored. This dissertation makes use of the 2008 Gallup World Poll and a novel wealth database compiled by the World Bank to evaluate the effect of wealth, produced capital, and natural resources on life satisfaction. The dissertation finds that both produced capital and natural capital have a positive effect on life satisfaction. The effect of good institutions and informal safety nets is also positive. However, in results that parallel findings from the resource curse literature, this dissertation shows that the positive effect of natural capital is due to diffuse natural resources like cropland, pastureland and forestry. Subsoil asset wealth has no significant effect on life satisfaction. Blood feuds represent a significant challenge to law enforcement, institutional consolidation and economic development due to the violence they generate and the other forms of crime they contribute to. This paper seeks to model and explain the decision making dynamics behind blood feuds. Rather than a simple retaliatory act, the violence associated with blood feuds is very much an integral aspect of an institutional framework that reflects a different set of ecological conditions and preferences. This paper incorporates different cultural and ecological aspects of various societies into a theoretical model that explains how blood feuds are sustained in a society. In addition, the model developed in this paper helps explain the longevity of blood feuds and reconcile different views from the anthropology literature.

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Hitaj, Ermal