PLANNING AND ENVIRONMENTAL POLICY RESEARCH SERIES WORKING PAPERS 2006 A Spatial Econometric Analysis of Well-being using a Geographical Information Systems Approach

In recent years, economists have being using socio-economic and socio-demographic characteristics to explain self-reported individual happiness or satisfaction with life. Using Geographical Information Systems (GIS), we employ data disaggregated at the individual and local level to show that while these variables are important, consideration of amenities such as climate, environmental and urban conditions is critical when analyzing subjective wellbeing. Location-specific factors are shown to have a direct impact on life satisfaction. Most importantly, however, the explanatory power of our happiness function substantially increases when the spatial variables are included, highlighting the importance of the role of the spatial dimension in determining well-being. This may have potentially important implications for setting priorities for public policy as, in essence, improving well-being could be considered to be the ultimate goal of public policy.