3. INTRA-HOUSEHOLD POSITIONAL CONCERNS AND WELL-BEING OF THE RURAL
3.2. Linking parents’ positional concerns and their attributes to well-being
There are different explanations in literature as to the relationship between relative income and well- being. For instance, a positive relative concern can be interpreted as a sign of community ties and altruistic preferences among poor rural households (Kingdon and Knight, 2007; Bookwalter and Dalenberg, 2010, for South Africa and Akay et al., 2012, for China). For instance, Akay et al (2012) find a positive and significant effect of relative income on the well-being of migrants in China. Alternatively, it may reveal a ‘signal effect’ or ‘tunnel effect’ (Hirschman, 1973), i.e., a worker's well- being that is positively affected by the observation of faster income progression of others if they interpret this movement as a sign that their own turn will come around soon. For instance, respondents indicate that reference income serves as information to create future expectations and as an aspiration for the possibility of achieving that income level. Hence, under such conditions, relative income may
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be positively correlated with SWB. Opposite effects, status effects and signal effect may offset each other, and their relative weight depends in particular on beliefs about social mobility (Senik, 2008).
In linking parents’ positional concerns with well-being of youth members, there are two common ways to model positional concerns (status concerns) in a utility framework: 1) a ratio comparison utility function, 𝑈 = 𝑢(𝑌,𝑌
𝑌̅ ), where Y refers to individual income earnings, and 𝑌 ̅ is the average income in
the society (Persson, 1995) and 2) additive comparison utility function, 𝑈 = 𝑢(𝑌, 𝑌 − 𝑌)̅̅̅ (Akerlof, 1997). In this study, I choose to use the additive comparison utility function of the following form:
𝑈𝑖 (𝑌𝑖, 𝑌𝑖 − 𝑌̅𝑠) = (1 − 𝛾)𝑌𝑖 + 𝛾(𝑌 − 𝑌̅𝑟) (3.1)
Where 𝑈𝑖 indicates the utility of an individual i; 𝑌𝑖 is individual income, 𝑌𝑟̅̅̅ is average income in the reference group (i.e. the average income in the society A or B); 𝛾 measures the marginal degree of positional concern, i.e. the portion of the total change in utility that comes from an increase in relative income after a marginal increase in own absolute income; 0 ≤ 𝛾 ≤ 1. Based on the utility function specified in (3.1), 𝛾 is expected to be positive, and that a higher 𝛾 indicates a stronger positional concern for that specific subject. It should be noted also that the positive sign of 𝛾 does not imply a utility increase as in the case of the SWB approach.
The utility function adopted here contains two important elements: 1)a parameter 𝛾 𝜖[0,1] that measures the degree to which parents or youth own positional concerns affect well-being of youth members as opposed to absolute income (see Eq. 3.1) and 2) the curvature of the welfare function as it is affected by positional concerns (Pingle and Mitchell, 2002). The assumption here is that the preferences of participants can be expressed using the utility function and the nature of the data allows one to infer what properties the utility function should possess in order to infer a specific type of behaviour observed. For instance, the distribution of data could indicate whether preferences are heterogeneous or not, whether a fraction of youth, fathers and mothers exhibit tendencies to give weight to relative concerns and whether fraction of youth, fathers, and mothers give weight to positional concerns. Since the utility of youth depends not only on their own positional concern but also on the positional concerns of their fathers and mothers as well as their attributes, I extend a utility function presented above assuming the following relation:
𝑈(𝑖, ℎ) = 𝑆𝑊𝐵(𝛾𝑖, 𝛾𝑓, 𝛾𝑚, 𝑋, 𝑌ℎ), (3.2)
Where U is the economic concept of utility or well-being of youth i who is a member of household h,𝛾𝑖, 𝛾𝑓, 𝛾𝑚 stands for the marginal degree of positional concerns of youth who are members of
household h, father and mother subjects, respectively; X denotes individual and household attributes (including father and mother characteristics) as well as community and institutional factors that influence well-being of youth. Set of variables categorized under X, that influence youth SWB has been
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widely discussed in both economics and psychology literature (Alpizar et al., 2005; Pingle and Mitchell, 2002), and in this paper I consult variety of literature to include relevant variables deemed to affect well-being. Yh denotes the household income. Our empirical analysis presented under section 3.6, which I briefly discuss under estimation strategy, is based on different specifications of Eq. (3.2).
A second specification will add the marginal degree of positional concerns of fathers and mothers as well as their individual characteristics such as age, education and their relationship or role in the household. The marginal degree of positional concerns of both fathers and mothers are anticipated to be positively correlated with sons’ and/or daughters’ subjective well-being. In this case, fathers and/or mothers preferences are toward equal society. In other words, the higher the marginal degree of positional concerns of parents, the higher the son/daughter SWB living in Bi society, i.e. in a society where income difference is less. If it is negatively related and significant, it means that its absolute income that matters most for the well-being of youth and relative income comprises the smaller portion of the utility of youth. It also means that parents prefer their sons/daughters earn more income in absolute terms, irrespective of the income of others. In this case, the subject is less positional or has less preference for positionality (relative income). It can be interpreted in such a way that subjects use the higher income of the peers (comparison groups) as a signal effect in the sense that it is an indication of future earnings or prospects.
Finally, for comparison purpose, I also specify our estimation that SWB of youth is associated with youth’s own marginal degree of positional concerns and the marginal degree of positional concern of a household head along with a set of individual and household characteristics or attributes. In this model, I specify that X include individual characteristics and the characteristics of the household head, besides the household assets (including family income) and community characteristics. This specification serves as a comparison model if head characteristics (or attributes) are used instead of father and mother attributes. This also serves as a sensitivity analysis of the relevance of the choice of parental variables.