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IZA
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Income and Happiness: New Results from Generalized Threshold and Sequential Models
by
Stefan Boes, Rainer Winkelmann
(June 2004)
published in: Social Indicators Research, 2010, 95 (1), 111-128
Abstract:
Empirical studies on the relationship between income and happiness commonly use standard
ordered response models, the most well-known representatives being the ordered logit and
the ordered probit. However, these models restrict the marginal probability effects by design,
and therefore limit the analysis of distributional aspects of a change in income, that is, the
study of whether the income effect depend on a person's happiness. In this paper we
pinpoint the shortcomings of standard models and propose two alternatives, namely
generalized threshold and sequential models. With data of two waves of the German Socio-
Economic Panel, 1984 and 1997, we show that the more general models yield different
marginal probability effects than standard models.
Text: See Discussion Paper No. 1175 
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