Heterogeneity in reported well-being: evidence from twelve european countries.

This paper models the relationship between income and self-reported well-being using random-effect techniques applied to panel data from twelve European countries. We cannot distinguish empirically between heterogeneities in the utility function (translating income into utility) and the expression function (turning utility into self-reported well-being), but we strongly reject the hypothesis that individuals carry out these joint transformations in the same way. The "marginal well-being effect of income" is very different in the four classes we identify; we thus expect preferences for redistribution and behaviour to be different across these classes. Our results suggests that aggregating data across diverse populations, and countries, may be a dangerous practice.