Abstract
This paper investigates how economics of happiness improves traditional economics and social welfare. If subjective happiness can be used as a proxy of utility, income distribution problem becomes solvable. However, analysis of a time series of subjective happiness is known to result in so-called ‘paradox of happiness.’ Relative income hypothesis together with adaptation hypothesis well explains the paradox, which is also supported in this paper. However, I offer two objections to the paradox. First, I propose a new measure for happiness, which is obtained by asking a change in happiness instead of asking a level of happiness. If we adopt a sum of the change in happiness as the definition of happiness, the paradox may disappear. Second, subjective happiness, which is based on reflection of us, differs from utility, which is based on comparison and choice. What is practically important to our life is the latter, so that paradox of happiness does not necessarily mean that improvement of the standard of life is in vein.
