Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 08-25: Economic Satisfaction and Income Rank in Small Neighbourhoods

Andrew E. Clark (), Nicolai Kristensen and Niels Westergaard-Nielsen ()
Additional contact information
Andrew E. Clark: Paris School of Economics, Postal: Paris School of Economics, Paris, France
Nicolai Kristensen: Department of Economics, Aarhus School of Business, Postal: Frichshuset Hermodsvej 22, 8230 Åbyhøj , Denmark
Niels Westergaard-Nielsen: Department of Economics, Aarhus School of Business, Postal: Frichshuset Hermodsvej 22, 8230 Åbyhøj , Denmark

Abstract: We contribute to the literature on well-being and comparisons by appealing to new Danish data dividing the country up into around 9,000 small neighbourhoods. Administrative data provides us with the income of every person in each of these neighbourhoods. This income information is matched to demographic and economic satisfaction variables from eight years of Danish ECHP data. Panel regression analysis shows that, conditional on own household income, respondents report higher satisfaction levels when their neighbours are richer. However, individuals are rank-sensitive: conditional on own income and neighbourhood median income, respondents are more satisfied as their percentile neighbourhood ranking improves. A ten percentage point rise in rank (i.e. from 40th to 20th position in a 200-household cell) is worth 0.11 on a one to six scale, which is a large marginal effect in satisfaction terms.

Keywords: Satisfaction; Neighbours; Income Comparisons; Geo-coded Data

JEL-codes: C23; C25; D84; J28; J31; J33

24 pages, January 1, 2008

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