A Structural Model of Well-being: with an application to German Data
Praag, B.M.S. van
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In this paper we attempt to explain individual, ordinally comparable,satisfaction levels. We postulate a simultaneous equation model where general satisfaction is explained by exogenous shock and level variables, and by the values of the satisfactions with respect to six distinct endogenous domains of life. Taking into account that these satisfactions were categorically measured and allowing for individual effects, the model was estimated on six consecutive waves of the German Socio-Economic Panel. The results are statistically very significant and plausible.The main conclusions of this paper are:given the fact that we get stable significant and intuitively interpretable results, the assumption of interpersonal (ordinal) comparability of satisfactions cannot be rejected on the grounds that it leads to insignificant or implausible results;It is possible to explain satisfactions to a large extent by objectively measurable variables;Domain Satisfactions are strongly interrelated because of common explanatory variables;General Satisfaction may be seen as an aggregate of the six domain satisfactions.