Climate and Happiness

1
Climate and Happiness
Katrin Rehdanz and David Maddison Hamburg
University University of Southern Denmark
2
Introduction

• Climate is an important input to many household
  activities
• Affects heating and cooling requirements
• Determines clothing and nutritional needs
• Limits recreational activities
• Impacts of an enhanced greenhouse effect are many
  and diverse
• The effects of a changing climate might be
  positive or negative, depending on time and place
• Little is known about peoples preferences for a
  particular climate
• Can we determine the economic impacts of future
  climate change to households/individuals?
• Is climate a determinant of happiness?

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Happiness and Temperature
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Outline

• Why are we interested in peoples preferences?
• Different valuation methods
• Happiness research
• Happiness in economics
• Regression analysis

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Why investigating preferences?

• Tackling the problem of future climate changes
• has major implications for policies of
  development and management
• is very costly
• Research work has generally focused on changes in
  productivity in sectors
• Little attention has been drawn to climate as an
  input to household activities
• To determine, if climate change is good or bad
  indicators are needed
• How can we measure the preferences for
  commodities not being traded on a market?

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Environmental Valuation Methods

• Environmental goods are not traded on a market
• How can we estimate the price nonetheless?
• Indirect valuation
• looks at surrogate markets (complements,
  substitutes)
• e.g. hedonic pricing method, household production
  function approach
• Direct valuation
• Hypothetical market
• e.g. contingent valuation
• ? Happiness research
• People are directly asked about their subjective
  well-being

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Happiness Research

• Domain of psychologists
• Analysis of individuals evaluation of life
• circumstances and comparisons to other people
• past experience and
• expectation of the future
• How is happiness measured?
• Different type of questions
• Taking all together, would you say you are
• very happy
• fairly happy
• not happy at all.
• Decades of validation research

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Happiness in Economics

• Uncommon in economics
• Objective position
• observable choices made by individuals
• preferences over goods and services
• Welfare
• Satisfaction with income
• More income enables individuals to satisfy more
  needs
• ... and more goods and services can be consumed
• Consequently
• ... economic growth is one of the major
  objectives of economic policy in any country

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Income and Happiness

• Well-being
• Broader concept
• Satisfation with life as a whole (happiness)
• What is the relationship between income and
  happiness?
• Are persons with high income at a given point in
  time happier than those with low income?
• Are persons in rich countries happier than those
  in poor countries?
• Does an increase in income over time raise
  happiness?

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Income and Happiness (2)

• On average richer people report higher subjective
  well-being
• Relationship seems to be nonlinear
• Income does buy happiness
• On average people living in rich countries are
  happier than those living in poor countries
• Happiness appears to be relatively stable and
  remaining flat with growing income

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Sum up

• Standard economic theory rejects subjective
  experience as being unscientific
• ... but there are limits to which material goods
  and income create utility
• and income can explain only a low proportion of
  differences in happiness
• So, what else determines differences in happiness?

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Recent Research

• Influence of unemployment, inflation and
  recession
• Clark and Oswald (1994)
• Di Tella et al. (2001, forthcoming)
• Political and personal freedoms of a country
• Frey and Stutzer (2000)
• Environmental quality such as noise or air
  pollution
• Van Praag and Baarsma (2001)
• Welsch (2002)

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Research on the amenity value of climate

• Hedonic approach
• Mainly applied to the US
• One of the few studies for Europe is Maddison and
  Bigano (2003)
• Household production function approach
• Cross-country comparisons possible
• Investigates changes in the consumption of
  related commodities
• Maddison (forthcoming)

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Regression Analysis

• Regression analysis
• Investigates on the relationship between climate
  and happiness
• Estimates the magnitude of the effects of changes
  in climate
• Controlling for many other factors
• Model specification
• Which explanatory variables should be included?
• Which functional form is appropriate?

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Variables

• Happiness data
• Self-reported happiness for 67 countries for
  different years
• 185 observations, 4 item response category
• Economic variables
• GDP per capita in 1995 USD
• Annual growth in GDP
• Shortfall in income
• Annual inflation rate
• Annual rate of unemployment
• Demographic variables
• Life expectancy
• Literacy rate
• Population density
• Proportion of population above 65 years
• Proportion of population below 15 years

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Variables (2)

• Cultural differences
• Political and civil rights
• Religion
• Climate variables in various indices
• Temperature, precipitation
• Annually averaged means
• Extremes
• Number of months with a particular climate

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Model specification

• Climate variables
• Minimum and maximum
• Annual averages and its squares
• Number of hot, cold, dry and wet months
• Modification
• Sampling weights
• Functional form
• Linear
• Semi-log, logistic

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Results (Model 1)
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Results (2)

• Climate variables explain part of the differences
  in self reported levels of happiness
• People seem to be concerned about
• very low temperatures
• very high temperatures
• very little rain (model 2)
• What is the impact of climate change?
• Calculate the change in GDP per capita necessary
  to hold happiness at its current level

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Climate Change

• Predicted changes in climate for 2 time slices
  (2010-2039 and 2040-2069)
• Temperature changes
• Most warming during winter months and in high
  latitudes
• Very warm summers will become more frequent
• Very cold winters will become very rare
• Changes in precipitation
• Great uncertainty
• Geographic differences in rainfall are becoming
  more pronounced
• Increased precipitation in high latitudes
• More seasonal drier summers and wetter winters
  in high latitudes

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Impact of Climate Change (2040)
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Impact of Climate Change (2040 and 2070)
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Some Examples
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Conclusions

• Income does buy happiness
• but can explain only a low proportion of
  differences in happiness
• Among other variables climate is one determinant
  of happiness
• We can use this information to calculate the
  impact of climate change
• Our results support findings that
• High latitude countries might benefit from modest
  global warming
• Low latitude countries would suffer losses

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Conclusions

• Number of limitations
• Climate and climate change differ not only
  between countries, but also within
• Other climate variables
• Other consequences of climate change
• Indirect effects like extreme weather events
• Time it takes people to adapt