1. Introduction
As a research area in economics, the empirical study of subjective well-being or happiness
has remained relatively dormant over almost a quarter of a century. Even the seminal study by
Easterlin (1974) could not motivate economists to devote much research time to the
systematic analysis of this topic.1 However, presumably as a consequence of the growing
dissatisfaction with the empirical application of traditional economic welfare analysis, this
field has seen rapid growth over the last few years (Clark and Oswald 1994, Di Tella et al.
2001, Easterlin 2001, Frey and Stutzer 2002). There are two main lines of research in the
empirical literature: First, the determinants of happiness are studied. Here the focus is on
individual-level variables that affect life satisfaction within countries, across countries and
across time. For instance, Blanchflower and Oswald 2000 study and compare happiness for
the US and the UK.
Second, after the fundamental relationships between these socio-demographic and economic
variables and happiness have been established, they can be used as a control framework for
testing the influence of other variables on well-being, for example Frey and Stutzer (1999)
analyze the impact of direct democracy and Di Tella et al. (2001) study the impact of
macroeconomic variables such as inflation and unemployment. To generate convincing
results, this second stream requires a relatively advanced knowledge about the core
determinants of happiness, as otherwise the omitted variable problem becomes
insurmountable.
So far, the literature has concentrated on studying Western Europe and the US. We know little
about the situation in the transition countries of Eastern Europe. Blanchflower and Freeman
(1997) look at Hungary and Slovenia within a pooled cross-section data set and find that life
satisfaction is on average lower in these countries than in the West. Blanchflower and Oswald
(1998) analyze the impact of unemployment on happiness and conclude that it is relatively
similar to Western countries. The case of Kyrgyzstan is investigated by Namazie and Sanfey
(1999). Graham and Pettinato (2000) and Ravallion and Lokshin (2000) employ the same
panel data set to study poverty and subjective economic well-being in Russia. Hayo and
Seifert (2003) concentrate their analysis on economic well-being, a sub-category of life-
satisfaction. They find that during early stages of transition, subjective well-being is not very
well proxied by indicators based on national accounting, such as GDP per capita.
1 There is a longer and more sustained tradition of studying happiness in Psychology and Sociology. Most
studies have a somewhat different focus than the ones by economists (see, e.g., Allardt 1973, Campbell et al.
1976, Strumpel 1974).