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?

3. Happiness and Temperature

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

5. 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?

6. 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

7. 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

8. 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

9. 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?

10. 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

11. 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?

12. 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)

13. 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)

14. Regression Analysis Regression analysis Model specification
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?

15. Variables Happiness data Economic variables Demographic variables
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

16. 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

17. Model specification Climate variables Modification Functional form
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

18. Results (Model 1)

19. 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

20. Climate Change
Predicted changes in climate for 2 time slices ( and )
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

21. Impact of Climate Change (2040)

22. Impact of Climate Change (2040 and 2070)

23. Some Examples

24. 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

25. 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