IESE Research Papers
Happiness and time allocation
() and Rakesh K. Sarin
Abstract: We consider a resource allocation problem in which time is
the principal resource. Utility is derived from time-consuming leisure
activities, as well as from consumption. To acquire consumption, time needs
to be allocated to income generating activities (i.e., work). Leisure
(e.g., social relationships, family and rest) is considered a basic good,
and its utility is evaluated using the Discounted Utility Model.
Consumption is adaptive and its utility is evaluated using a
reference-dependent model. Key empirical findings in the happiness
literature can be explained by our time allocation model. Further, we
examine the impact of projection bias on time allocation between work and
leisure. Projection bias causes individuals to overrate the utility derived
from income; consequently, individuals may allocate more than the optimal
time to work. This misallocation may produce a scenario in which a higher
wage rate results in a lower total utility.
Keywords: Life satisfaction; Work; Leisure; Social comparison; Adaptation; (follow links to similar papers)
38 pages, September 9, 2007
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