Scitovsky and the income-happiness paradox

The recent debate on happiness in economics has revived interest in Scitovsky’s 1976 book The Joyless Economy, which aims at explaining the income-happiness paradox, i.e. "why [American] unprecedented and fast-growing prosperity had left its beneficiaries unsatisfied." A dynamic economic model will distil Scitovsky’s proposal, which has not yet been integrated into conventional economics. It will show that people’s dissatisfaction may be due to their excess of demand for ‘comfort’, which requires consumption goods, and to their lack in pursuing ‘creative activities’, which instead essentially require leisure and a skill, called ‘leisure skill’, that people have failed to develop. Since comfort includes comparing consumption with that of others, Scitovsky also strengthened the conventional solution of the paradox.Scitovsky, income-happiness paradox, comfort, creative activities, leisure skill

The Easterlin paradox and the decline of social capital: an integrated explanation

During the most recent decades people in industrialised countries have reported both a stagnant or even declining subjective well-being, as Easterlin (1974) originally observed, and deterioration in their social and family bonds, as Putnam (2000) has claimed. The paper proposes an integrated explanation of these two stylised facts by extending the analysis of the relative income explanation of the Easterlin paradox to social relationships as enjoyable ends of choice. Drawing on the evidence-based results of social psychology, the paper constructs a model whose premises are (i) that individuals produce social relationships by means of relational ability, (ii) that this ability is primarily shaped during infancy and remains largely unpredictable, and (iii) that commercial pressure on children to consume in competition with others may displace the enjoyment of social relationships. The model extends microfoundations to encompass new psychological dimensions. It is thus able to merge individuals’ idiosyncratic dynamics – which may deteriorate across generations – with improving economic contextual conditions, and to indicate some new priorities in policy options.happiness, well-being, relational goods, personal relationships, attachment, unconscious

The underground economy and the underdevelopment trap

A general equilibrium model is proposed which assumes that firms hire both official and unregistered workers as imperfect substitutes, that entrepreneurs differ in their ability to increase the efficiency of official labour, and that this ability is due to heterogeneous original ability and to Marshallian (non-linear) externalities. In equilibrium, smaller firms hire fewer official workers and are less efficient. If externalities increase sufficiently when firms are numerous, two stable equilibria exist where the number and the size of firms, the proportion of official employment, overall output and efficiency are, respectively, small (the trap) and large. The increase of individual ability due to, e.g., educational policies, has positive effects on the equilibrium number of firms, overall output, and labour regularisation. High and evenly distributed entrepreneurship also make it more likely that increased externalities and penalties on the underground economy will have positive effects. These results may contribute to the current debate on the underground economy in the Southern areas of Ital

The Underground Economy in a Matching Model of Endogenous Growth

A matching model will explain both unemployment and economic growth by considering the underground sector. Three problems can thus be simultaneously accounted for: (i) the persistence of underground economy, (ii) the ambiguous relationships between underground employment and unemployment, and (iii) between growth and unemployment. Key assumptions are that entrepreneurial ability is heterogeneous, skill accumulation determines productivity growth, job-seekers choose whether to invest in education. The conclusions are that the least able entrepreneurs set up underground firms, employ unskilled labour, and do not contribute to growth. Underground employment alleviates unemployment only if the monitoring rate is sufficiently low.underground economy, entrepreneurship, growth, unemployment, matching models

A Matching Model of Endogenous Growth and Underground Firms

A matching model will explain both unemployment and economic growth by considering the underground sector and human capital. Three problems can thus be simultaneously accounted for: (i) the persistence of the underground sector, (ii) the ambiguous relationships between underground employment and unemployment, and (iii) between growth and unemployment. Key assumptions are that entrepreneurial ability is heterogeneous, skill accumulation determines productivity growth, job-seekers choose whether to invest in education. The conclusions are that the least able entrepreneurs, whose number is endogenous, set up underground firms, employ unskilled labour, and do not contribute to growth. If the monitoring rate is sufficiently low, underground employment alleviates unemployment, but the economy grows at lower rates.Matching models, endogenous growth, underground economy, entrepreneurship, unemployment.

The Underground Economy in a Matching Model of Endogenous Growth

A matching model will explain both unemployment and economic growth by considering the underground sector. Three problems can thus be simultaneously accounted for: (i) the persistence of underground economy, (ii) the ambiguous relationships between underground employment and unemployment, and (iii) between growth and unemployment. The key assumptions adopted are that entrepreneurial ability is heterogeneous across individuals; skill accumulation determines productivity growth in the regular sector and a positive externality on the underground sector; job-seekers choose whether or not to invest in education and skill depending on the expected wages in the two sectors. The conclusions are that the least able entrepreneurs set up underground firms, employ unskilled labour, and do not contribute to growth. Underground employment alleviates unemployment only if the monitoring rate is sufficiently low. Policies for entrepreneurship and monitoring would help both economic growth and employment.entrepreneurship, underground economy, shadow economy, unemployment, human capital, endogenous growth, search and matching models

Entrepreneurship and the Hidden Economy: an Extended Matching Model

This paper develops a standard matching model to address the problem of the hidden sector (including non-registered firms but producing for legal markets), as it is characterised in Italy, i.e. framed in a rather advanced economic and institutional setting, but also linked to the socio-economic regional dualism. The main novel features of the model are that entrepreneurial ability is heterogeneous, and that regular firms receive negative externalities from the hidden sector, and positive externalities from the other regular firms. Not only does an interior equilibrium emerge, but two stable equilibria are possible, thus accounting for Italy’s dualism. The “bad” equilibrium with respect to the “good” one is in fact characterised by a larger hidden sector, lower levels of overall productivity, output, entrepreneurial ability used, extra-profits, skilled employment, wages, and investment in education, as well as positive externalities; while the negative externalities, which may capture the pressure typically exerted by organised crime, are relatively greater.entrepreneurship, hidden economy, shadow economy, underground economy, matching models

Job performance and job satisfaction: an integrated survey

The empirical evidence from the econometrics of self-reported job satisfaction and from organisational psychology on job performance confronts economic theory with some puzzling results. Job performance is found to be positively correlated with job satisfaction, whereas effort is assumed to be a disutility in the theory. Economic incentives are not found to be the main motivations of job performance; in some cases, indeed, they are even counterproductive. Interest in the job is found to account better for job satisfaction. This paper proposes an integrated approach to these issues by (i) conducting an interdisciplinary critical survey, (ii) proposing a simple economic framework within which to explain the puzzles. The key idea behind this framework is that intrinsic motivations and self-esteem help explain both job satisfaction and job performance. The employer can thus adopt other, more friendly actions, besides using incentives and controls to enhance performance by employees.job performance, job satisfaction, intrinsic motivations