Panacea or Platitude: Integrated Water Resource Management - Conceptually Sound But Fundamentally Flawed

By Rhett Larson Water is unique in that it is often viewed simultaneously as a fundamental human right and yet an increasingly valuable natural resource largely integrated with private real property rights. Because of this dichotomy, water policy lends itself to similar dichotomous discussions, with aspirational platitudes met with pragmatic skepticism. In recent years, this dichotomy has crystallized around the concept of "integrated water resource management" ("IWRM"). IWRM is commonly defined as, "A process which promotes the coordinated development and management of water, land and related resources, in order to maximize the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems" (1). This essay describes the objectives of IWRM, examines its limitations in the context of one hotly contested river basin—the Colorado River Basin—and offers pragmatic suggestions on how to realize the aspirations of IWRM.

I. The Colorado River Basin—Why IWRM is Conceptually Sound

The Colorado River represents a classic example of a failure to incorporate IWRM principles in resource management. The river basin is shared by two countries, several states and many indigenous communities in an arid region that has a growing population, agricultural and mineral resources, and threatened ecosystems (2). The law of the Colorado River (commonly called "The Law of the River") is composed of legislation, court decisions and agreements, including the Colorado River Compact and the Mexican Water Treaty in particular, which set forth the rights of the river’s stakeholders and the relationships between riparian jurisdictions, including upper basin jurisdictions (like Colorado and Utah) and lower basin jurisdictions (like Arizona, California, and Mexico) (3,4,5). The compact was negotiated in 1922 and the treaty in 1944, each with limited input from many stakeholder groups, inadequate and inaccurate hydrologic and climatologic data, poor foresight on population growth and climate change, and virtually no consideration of ecological issues (6).

Upper basin jurisdictions often make development and management decisions independent of lower basin users who bear the heaviest burden of mismanagement by upstream riparian states. For example, dams in Nevada and Arizona, the operation of a desalinization plant along the Arizona/Mexico border and diversionary irrigation projects in northern Mexico and southern Arizona threaten the ecological balance of the Colorado River Delta, including the ancestral homeland of the Cocopah people and the endangered southwestern willow flycatcher. Each jurisdiction rationally seeks to satisfy its constituents without regard for externalities (7).

Had The Law of the River included a more flexible approach, allowing diversion rights to respond to changing flow conditions, and had development of The Law of the River integrated public participation (in particular from indigenous communities) and different disciplines (including ecology and climatology), much of the current crises related to the Colorado River might have been mitigated. But the development of The Law of the River is not just an example of failure to incorporate IWRM in treaty negotiation and development, it is a cautionary tale of the pitfalls for implementation of IWRM.

II. The Colorado River Basin—Why IWRM is Fundamentally Flawed

IWRM is fundamentally flawed in several ways demonstrated by challenges in the Colorado River Basin. Primarily, the concept of collaborative governance inherent in IWRM seldom works in practice (8). Stakeholder interests and cultures in most contested river basins are simply too diverse and their differences too divisive. For example, it is difficult to harmonize the disparate interests of casino developers on the Las Vegas strip with fishermen in the Colorado River delta (9). The challenge is all the more acute given the unanimity principle inherent in the concept of collaborative governance—e.g. IWRM (8). Unanimity amongst so diverse, and so competitive, a group of stakeholders hedges in IWRM efforts dependent upon collaboration.

Indeed, diversity is a central challenge to implementation of IWRM, and not just economic, cultural and political diversity. The geological, ecological, and hydrological conditions of large contested rivers are typically too diverse to lend themselves to centralized IWRM. The Colorado River Basin encompasses highly varied geological and ecological conditions, from perennial mountain streams in the Rockies to ephemeral arroyos in the Sonoran Desert (6,7). The technical challenge of developing nuanced standards over so diverse a watershed poses an obstacle to successful IWRM implementation.

Furthermore, existing legal institutions may be inconsistent with IWRM objectives. For example, Arizona maintains a bifurcated water rights system in which groundwater and surface water are treated as distinct, disconnected resources (10). This bifurcation is a legal fiction, as surface water and groundwater resources frequently interact as part of the hydrologic cycle and rarely lend themselves to bright-line distinctions. This legal fiction has resulted in significant litigation amongst Arizona users, and would serve only to further muddy the legal miasma of integrating multiple jurisdictions’ water law (11). In order to take an integrated approach to water management, IWRM proponents would have to integrate regulation of surface and groundwater in Arizona, thereby overcoming the rigid expectations of Arizona groundwater rights holders based on more than a century of law treating groundwater and surface water as distinct resources.

Entrenched expectations and rigid legal rights can frustrate IWRM success. The U.S. federal government holds in trust reserved water rights for all tribes within the basin (12). These reserved water rights represent a critical assumption underlying the treaties establishing tribal reservations upon which indigenous peoples rely both economically and culturally. Impinging upon these federally reserved rights to more effectively allocate water resources across the entire watershed would be viewed by many tribes as an assault on their sovereignty, a blatant violation of long-established treaty rights, an unconstitutional exercise of eminent domain on tribal property and a dereliction of a fiduciary duty held in trust by the federal government for the benefit of the tribe. IWRM comes to the scene too late at a point when resources have become so scarce and reliance on contractual and historical practices so entrenched as to practically preclude the effort to integrate other management approaches.

III. How To Advance IWRM While Mitigating Its Flaws

While IWRM principles address the most fundament challenges of water basin management, the practical implementation of IWRM would prove too unwieldy a tool in the face of the types of obstacles illustrated in the Colorado River Basin. The following four prescriptions would mitigate the weaknesses of IWRM while still upholding its values.

First, IWRM should provide overarching guidance to promote consistency in a series of management plans, "Starting at the sub-basin level and be progressively integrated into a multinational planning and management regime for the entire river basin" (13). This ensures that the institutions and regulatory framework developed by IWRM are sufficiently nuanced to the peculiar hydrogeological, ecological, cultural and economic issues in each sub-basin.

Second, IWRM must incorporate adaptive management principles. Adaptive management is, "A decision process that promotes flexible decision making that can be adjusted in the face of uncertainties as outcomes from management actions and other events become better understood…It is not a ‘trial by error’ process, but rather emphasizes learning while doing" (14). Adaptive management principles prevent decisions made in the IWRM process from becoming stale and static in contrast to the dynamic variables of watershed management.

Third, the shared benefits model used in the 1961 Columbia River Treaty between the United States and Canada allows downstream users to share in the benefits of upstream allocations, including dams for reservoirs or hydroelectric power. In that treaty, Canada agreed to forego certain development and diversion opportunities within the watershed, and offered flood control measures to the United States, in exchange for payment from the United States of revenues derived from electricity sales and water storage for Canadian users. The concept of "shared benefits" is derived from welfare economics, which posits that water is simply a valuable, scarce commodity with multiple possible alternative uses (15, 16).

Fourth, transferable private water rights (including tribal reserved water rights) must be viewed as consistent with IWRM objectives. "Private rights in water are fully transparent in every state water rights system. They are inclusive in the sense that potential water users may acquire water rights, although both the riparian and appropriation systems do place limits on type and place of use. Private rights in water provide accountability except to the extent that costs and benefits cannot be fully internalized. Finally, market exchanges of private water rights assure efficient allocation of the water resources, again assuming costs and benefits are internalized" (8).

IV. Conclusion

The objectives of IWRM are directed at problems that have always plagued watershed management, including lack of transparency, inclusivity and coordination. However, its implementation is hampered by the technical difficulties in regulating varied ecological and climatic conditions over large areas, collaboration between diverse stakeholders with competing and entrenched interests, and distinct jurisdictions sharing the watershed, each with legal institutions which may be inconsistent with one another and with the objectives of IWRM. The flaws can be mitigated through sub-basin planning, adaptive management, shared benefits and application of market forces on transferable water rights.


(1) Global Water Partnership (2000) Integrated Water Resources Management. in TAC Background Papers No. 4 (GWP Secretariat, Stockholm).

(2) Adler RW (2002) Restoring Colorado River Ecosystems:  A Troubled Sense of Immensity (Island Press, Washington, D.C.).

(3) Wilber RL & Ely N (1948) The Hoover Dam Documents (U.S. Government Printing Office, Washington D.C.)

(4) Nathanson MN (1980) Updating the Hoover Dam documents, 1978 (U.S. Department of the Interior, Bureau of Reclamation).

(5) Treaty Between the United States of America and Mexico Respecting Utilization of Waters of the Colorado and Tijuana Rivers and of the Rio Grande (1944) 59 Stat. 1219, 1237.

(6) Pulwarty RS, Jacobs KL, & Dole RM (2005) The Hardest Working River: Drought and Critical Water Problems in the Colorado River Basin. Drought and Water Crises, ed Wilhite DA (CRC Press, Boca Raton, Florida), pp 249-280.

(7) Glennon RJ & Culp PW (2002) The Last Green Lagoon: How and Why the Bush Administration Should Save the Colorado River Delta. Ecology Law Quarterly 28(4):902-992.

(8) James L. Huffman, "Comprehensive River Basin Management: The Limits of Collaborative, Stakeholder-Based, Water Governance," 49 Nat. Resources J. 117, 144 (2009).

(9) Fradkin PL (1996) A River No More:  The Colorado River and the West (University of California Press, Berkeley).

(10)  Evans A (2010) The Groundwater/Surface Water Dilemma in Arizona: A Look Back and a Look Ahead Toward Conjunctive Management Reform. Phoenix Law Review 3:269-291.

(11) In re General Adjudication of All Rights to Use Water in the Gila River System and Source (989 P.2d 739, 749 (Ariz. 1999).

(12) Winters v. United States (1908) 297 U.S. 564.

(13) Tarlock AD (Changing Currents: Perspectives on the State of Water Law and Policy in the 21st Century. Tulane Environmental Law Journal 23(2):369.

(14) U.S. Dept. of the Interior (2009) Adaptive Management Technical Guide 4, available at http://www.doi.gov.initiatives/Adaptive Management/TechGuide.pdf.

(15) Tarlock AD & Wouters P (2002) Are Shared Benefits of International Waters an Equitable Apportionment? Colorado Journal of International Environmental Law and Policy 18(3).

(16) Sadoff CW & Grey D (2002) Beyond the river: the benefits of cooperation on international rivers. Water Policy 4(5):389-403.

Contributor’s Biography

Rhett Larson's research and teaching interests are in administrative law and environmental and natural resource law, in particular, domestic and international water law and policy. Larson graduated from the University of Chicago Law School, where he was a Mohlman and S.K. Yee Scholar, and received his Master of Science in Water Science, Policy, and Management from Oxford University, where he was a Weidenfeld Scholar. Larson is a visiting assistant professor of law at the Sandra Day O’Connor College of Law, Arizona State University.

Closing the Energy Efficiency Information Gap for Small Businesses

Small businesses are vital to the health of the United States’ economy. They provide essential goods and services, employ millions of Americans and generate half the U.S. nonfarm GDP (1). Businesses of all sizes prioritize cost reductions, but small businesses‘which lack the monetary, personnel, and technological resources of large corporations‘are often more sensitive to cost variability. This sensitivity to cost fluctuations is especially pronounced for energy expenditures, which cost U.S. small businesses approximately $130 billion each year (2). By decreasing energy expenditures, small businesses can increase efficiency across their operations, strengthen their financial prospects and minimize their impact on the environment.

Recently, there has been some debate in the literature about the aggregate economic effects of energy efficiency on sustainability and the environment (3); in the long term, energy efficiency can result in unintended "rebound" and "backfire" effects that may negate the environmental gains from efficiency.  However, if coupled with complementary energy policies that reduce energy consumption, some scholars argue that efficiency measures can offer "simultaneous economic and environmental gain" (3). This finding suggests that policymakers must be well informed and engaged for efficiency and sustainability initiatives to prove effective.

To reduce vulnerability to rising energy costs, small businesses can invest in either energy efficiency or renewable energy generation. A number of federal programs incentivize these investments. For example, businesses adopting renewable energy generation‘such as solar cells and small wind‘are eligible for a tax credit worth 30 percent of the project’s cost (4). Additionally, the Energy Star program offers tax credits and rebates for purchasing energy efficient goods (5).

There is some disagreement among lawmakers, academics and business owners on the most effective policies for helping small businesses reduce energy costs‘some favor tax incentives, others direct subsidies or even government mandates.  However, few argue against providing access to information on these incentive programs once they are in place. Better information about energy incentive programs can increase their effectiveness by reducing the time and effort needed for businesses to learn about and implement efficiency measures.

To date, researchers have not thoroughly investigated whether information about incentive programs is effectively disseminated to small businesses. Additionally, virtually no information exists regarding small businesses’ energy consumption habits based on available information. A thorough literature review uncovered one recent study exploring energy-consumption behaviors in the commercial sector, in which the author acknowledges, "[T]here is essentially no information about how small-business decision-makers make choices about energy consumption" (6). We felt that these findings‘or lack thereof‘warranted further investigation of a topic that has potentially huge ramifications for small business owners, the U.S. economy and the environment.

We partnered with the Environmental and Energy Study Institute (EESI), a nonprofit, nonpartisan organization based in Washington DC that provides policymakers with information on environmental and energy-related issues. We worked closely with EESI to develop a study that would garner qualitative information on the energy consumption practices of small businesses in the Northeast and assess these business’ general attitudes toward energy efficiency. We used the results to identify opportunities to improve federal policies promoting energy efficiency among small businesses.

How Did We Do It?

We conducted in-depth interviews with owners or operators of 20 small businesses located in the northeastern United States (Table 1). To prepare for the interviews, we received instruction and training from Bentley psychology Professor Helen Meldrum, who has over two decades of experience conducting interviews for research. Businesses were selected using online business directories, personal contacts and referrals. Aside from ensuring the businesses represented a range of industries and sizes‘from a two-person accounting firm to a telecommunications company with 120 employees‘there were no other constraints considered when selecting businesses to interview. If a business declined to be interviewed, then a replacement business in a similar industry and of comparable size was contacted.

Table of Information on Businesses Interviewed in this Study

The 20 interviews were divided equally among four interviewers, each of whom handled all correspondence with the small businesses. We contacted each business via telephone, but only conducted five of the interviews over the phone. The remaining fifteen interviews were conducted in person. All 20 interviewees were business owners or management-level employees with detailed knowledge of the company’s energy consumption. Objective ("yes or no") questions were followed with open-ended questions to gather information on:

  • Energy consumption habits of small businesses
  • Energy efficiency habits of small businesses
  • Overall impact of energy-related needs and costs on small businesses and small business owners
  • Small business owners’ knowledge of strategies for increasing energy efficiency, including the business owners’ awareness of federal programs incentivizing energy efficiency

Speaking with business owners directly offered us a detailed perspective on the relationship between their energy-related knowledge and actions.  Rather than providing policymakers with just numbers, our in-depth qualitative interviews garnered stories that highlight real and perceived gaps in energy policy for small businesses. These insights may not have been readily apparent through a purely quantitative approach.

Findings: Small Businesses Want Large Cost Savings Now

Interviewees were open about their energy needs, habits and attitudes, and virtually all of the business owners interviewed said they would like to lower their energy costs. As the interviews progressed, common themes that spanned multiple sectors emerged.

A pervasive sentiment the interviewees expressed was the importance of immediate cost savings. Reducing costs to increase profits was the businesses’ primary motivator, and if increasing energy efficiency would lower expenses, the small business owners said they would proactively increase efficiency. However, interview responses suggest that businesses primarily take reactive approaches to energy efficiency; that is, they reduce energy consumption only after their energy costs rise. Out of the 20 businesses, only three ever had an energy audit, and some were partially or wholly unfamiliar with the practice (Figure 1 and Table 2).

Responses to Key Interview Questions

Many business owners also felt that they are not able to reduce their energy costs. Even if energy providers significantly increased their prices, many of the owners believe they have no option but to pay higher energy costs. The owner of a beauty salon said, "Every time I open my electricity bill I shriek…if [costs continue to rise] I’ll be forced to shut down," and, "There really isn’t anything out there for us to improve upon. We use a lot of high-energy things."

Our interviews suggest that these small businesses’ failure to anticipate and insure themselves against cost increases may result primarily from a lack of information about energy-related programs available to them. Most interviewees said they find it difficult to locate relevant and accurate information about energy and energy efficiency, and only eight out of the 20 interviewees were aware of federal programs that incentivize energy efficiency (Figure 1 and Table 2). Many businesses went on to say that they rely solely on their electricity and fuel providers for energy-related information. The owner of a small auto garage noted, "Every now and then I look at my gas bill and see some interesting information or statistic [about energy], but that’s about the only time I get [energy-related] information." In another case, a florist stated that although he is unaware of steps he could take to reduce energy costs, if he received information on what to do, he would unquestionably take action.

Table of Small Business Interview Responses

When asked about possible energy saving solutions, the business owners felt tax incentives intended specifically for small businesses would be most beneficial. However, most business owners knew more about the tax incentives they do not qualify for than those they do. Some of the business owners assumed that they would not qualify for federal incentive programs without actually researching whether this is the case.

Bottom line

The business owners we spoke with overwhelmingly want to reduce energy costs. However, most of them simply do not know where to find information on how to do so.

Policy Implications

Although this study had a very small sample size, the findings may have implications for public policy. Because the small businesses interviewed were largely unaware of federal programs or general actions that can reduce energy consumption, it appears that information on energy and energy efficiency is not being adequately disseminated. Therefore, policymakers interested in increasing the effectiveness of these programs should seek new channels for conveying information to small businesses. One possible channel identified by this study is small business organizations. Fifty percent of the businesses interviewed said they are currently members of a small business organization. Meanwhile, several others said they are interested in joining such an organization (Figure 2 and Table 3). All of these businesses said they would trust their current or potential small business organizations for energy-related information, but only one business said its organization currently provides such information. These findings indicate that small business organizations may be an underutilized and potentially effective channel for distributing energy-related information to small businesses.

Admittedly, deciding what the federal government’s ideal role should be in helping small businesses increase their energy efficiency is debatable. Many state governments have programs incentivizing energy efficiency, and some may see additional federal programs as unnecessary or even unwelcome. The specific policies the federal government should employ to promote energy efficiency are also open to interpretation. Tax incentives and rebate programs such as Energy Star are widely touted, but some argue that direct funding is more effective. Others may call for reduced governmental intervention across the board, arguing the government need not attempt to influence or support the private sector. Nevertheless, our study signals that there is a lack of knowledge among small businesses regarding existing policy measures supported by the federal government. Acknowledging and addressing inefficiencies among these programs would not require Congress to authorize any new programs (or additional spending) and could be seen as beneficial regardless of one’s position on promoting these or alternative measures.

Giving Small Businesses a Larger Voice on Capitol Hill

Once our study was complete, we communicated our findings to federal policymakers in Washington DC. We met with staffers from the U.S. Senate Energy and Natural Resources Committee as well as staffers from the offices of Senators Scott Brown (R-MA), John Kerry (D-MA), Jeanne Shaheen (D-NH), Jon Tester (D-MT) and Jim Webb (D-VA). We also had the opportunity to meet with Senator Tester directly to discuss the results presented here.

Based on the those results, on February 2, 2011, Senators Kerry, Tester, Shaheen, and Lieberman (I-CT) sent letters to administrators of the Environmental Protection Agency (EPA) and the Small Business Administration (SBA) asking for a Memo of Understanding between the agencies to maximize the impact of federal energy efficiency programs on small businesses.

The Road Ahead

As with all public policy decisions, there is no clear path ahead to unilaterally spur energy efficiency among small businesses via federal programs. Nevertheless, we believe this study provides insight on the energy habits of small businesses that policymakers must consider in order to best serve these businesses. Our study indicates that small business owners are ill informed about federal energy efficiency programs. Improving communication and access to these programs for small business owners could produce many benefits for our economy, our environment and our country.


(1) Kobe, K. (2007). The Small Business Share of GDP, 1998-2004. Washington, DC: SBA Office of Advocacy.

(2) Bollman, A. (2008). Characterization and Analysis of Small Business Energy Costs. Washington, DC: SBA Small Business Office of Advocacy.

(3) Hanley, N., McGregor, P.G., Swales, J.K., and Turner, K. (2009) Do increases in energy efficiency improve environmental quality and sustainability?, Ecological Economics, 68: 692-709.

(4) DSIRE. (2010, June 9). Federal Incentives/Policies for Renewables & Efficiency. Retrieved April 10, 2011, from DSIRE: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F

(5) ENERGY STAR. (n.d.). ENERGY STAR for Small Business. Retrieved April 11, 2011, from ENERGY STAR Web site: http://www.energystar.gov/index.cfm?c=small_business.sb_index

(6) Payne, Christopher Todd. (2006). Energy Consumption Behavior in the Commercial Sector: An Ethnographic Analysis of Utility Bill Information and Customer Comprehension in the Workplace (Doctoral Dissertation). Retrieved from ProQuest Dissertations and Theses Database. (3220742).

Contributors' Biographies:

William Markow, Victoria Adams, Daniel Green, and Gregory Bucci are undergraduate students at Bentley University in Waltham, Masachusetts. David Szymanski, Ph.D., is an Assistant Professor in the Department of Natural and Applied Sciences at Bentley and advised the students on this project. This research was the focus of an undergraduate course taught by Dr. Szymanski on federal environmental and natural resource policy. The authors would like to thank Carol Werner and Ellen Vaughan at the Environmental and Energy Study Institute (EESI), Dr. Helen Meldrum at Bentley University and all the small business owners who took part in our study. For further correspondence, please contact David Szymanski at dszymanski@bentley.edu.

Too Much of a Good Thing: The Relationship between Money and Happiness in a Post-Industrial Society

By Alison Dalton Smith Happiness is considered a universal human aspiration, but the means to achieving happiness has become inexorably entangled with gaining material possessions.  In common paradigms of economic development, Gross Domestic Product is used as a proxy for measuring the well-being of a nation’s citizens.  While this is often true in impoverished nations where basic needs are not met, there is a threshold point past which increasing economic gains no longer necessarily deliver increases in human well-being.  Beyond this threshold, economic measures are no longer adequate for accurate measurement of a nation’s human well-being. In fact, this myopic focus on economic growth has created an unsustainable way of life that is increasingly unfulfilling for those that are engaged in the cycles of consumption.  In this paper, I will address both recent patterns in human well-being in industrialized nations and more comprehensive indexes that quantify human well-being.

Sustainability is the interaction of three aspects of life: environmental, economic, and social. Citizens and researchers alike accept there are causal effects of increasing economic activity and resulting environmental degradation. The link between the social aspect of life and economic activity was long thought to be a positive one;  I contend that this assumption only holds up to a certain point.  I will not try to pinpoint the threshold in this paper, but will only bring together different sources of information to show that increasing economic growth does not bring positive social returns in all cases.  The growth of literature on this topic began with psychology and has recently been developed by economists.  I will explain the terminology used and data sources in the first part of the paper, examine the data trends in the next part, and finally make recommendations for how we can address the issues presented in the paper.

The concepts of happiness, well-being, and life satisfaction have been used interchangeably in the literature addressing connections between economic growth and social returns, although recent studies show that there are significant differences between happiness and life satisfaction (Veenhoven, 1991; Diener & Biswas-Diener, 2002). Peggy Schyns (1998) found the correlation between life satisfaction and happiness to be .90, which supports this interchangeable use.  However, as quality of life studies have progressed, some researchers have begun to separate the two.  Happiness has been defined as affective (influenced or resulting from emotion), and life satisfaction as cognitive (the process of thought) (Diener, 2004).  Happiness research has generally been based on surveys that ask just one question.  Subjective well-being (SWB) is a term often used to indicate a more comprehensive approach to life satisfaction that incorporates happiness and other judgments of the overall quality of life (Hoorn & André, 2007).

The national accounts of well-being, created by the New Economic Foundation, is a completely different approach to well-being assessment.  People are asked not one, but 50 questions about well-being from personal and social aspects of their lives.  This approach is especially important because it can be used across socio-political scales, from tribal to national levels. (New Economics Foundation, 2009).

Amartya Sen’s capabilities approach is another atypical approach to human well-being assessment.  This approach, developed in the 1980s, is different from the data analysis approach. The freedoms of individuals are the building blocks and, "attention is thus paid particularly to the expansion of the ‘capabilities’ of persons to lead the kind of lives they value and have reason to value," (Sen, 1999, p. 18).  The benefit of using this paradigm is that it can be applied across values systems, cultures, languages, and scales because it allows the user to define the values intrinsic to the evaluation (Sen, 1999).

Richard Easterlin challenged the perception that economic growth would lead to increases in happiness in his seminal paper, Does Economic Growth Improve the Human Lot? (1974). The findings of his paper are known as the Easterlin Paradox.  He made three conclusions that led to debate and research for the next thirty years.  The first was that people with higher incomes are happier than those with lower incomes within the same country. He claims causality from these findings from income to happiness (Easterlin, 1974).

Second, he concludes that his findings for individuals does not hold up for countries; "…if there is a positive association among countries between income and happiness it is not very clear," Easterlin, 108, 1974).  His third conclusion is that as a country’s GNP increases, its population does not get happier.  He only has data from the United States, as there were no other countries with time-series data on this issue.  These last two findings have not held up over time. In-depth analysis on this topic can be found in Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox (Stevensen & Wolfers, 2008) and Subjective Well-Being: Three Decades of Progress (Diener, Suh, Lucas, & Smith, 1999).

Easterlin’s first finding that rich people tend to be much happier than poor people was corroborated by subsequent research (Diener & Biswas-Diener, 2002).  While rich people tend to be happier, this is only part of the picture.  Rich people do not get any happier with more money (Scitovsky, 1992). In fact, from 1946- 1970, per capita real income rose by 62 per cent in the US, but reported happiness did not change substantially (Scitovsky, 1992).  In the rest of the paper, I will address this occurrence.

Between 1946 and 1996, per-capita real income rose by a factor of 2.5, but average happiness has remained the same (Frey & Stutzer, 2002). Figure 1 shows a perplexing trend that has occurred in the United States.  Since the mid-1960s, the percentage of very happy people in the United States has actually decreased slightly while GDP per capita has skyrocketed. Figure 2 shows that a similar trend has occurred in Japan.



Figure 3 shows cross-national data of a nation’s GDP per capita and SWB Index.  From the graph, we can see that GDP is not the most significant determinant of a country’s SWB.  Countries with similar cultural patterns and political states tend to cluster together.  While high SWB does not rely solely on high per capita GDP (there are both rich and poor countries with high SWB), it does appear true that low SWB does not occur in countries with high per capita GDP. In countries where large numbers of the population are extremely poor, people have too little to eat, or are homeless, happiness measures do increase when everyone’s income rises (Frank, 2007).

"]Figure 3: GDP per capita vs. Subjective Well-Being for the Different Societies (Inglehart, R. Foa, C. Peterson & C. Welzel (2008).)[A1]In developed countries, Richard Layard found a peculiar occurrence: as people gained more income, their perceived income requirement rose.  People base their satisfaction on their current income based on what they have and what they want to have.  As the gap between their wants and needs widen, their current incomes become insufficient.  Because of this phenomenon, Layard concludes, it is difficult for economic growth to improve happiness (Layard, 2005).

Ruut Veenhoven suggests that wealth is subject to the law of diminishing returns after a country surpasses industrialization (Veenhoven, 1991).  This finding was repeated in Ed Denier’s international study.  He showed that happiness rose sharply as GDP per capita increased when GDP was at a basic subsistence level, but after a nation industrialized, happiness rose at a slower rate (Diener & Biswas-Diener, 2002).

In addition to the diminishing returns on income, people tend to adapt to their circumstances, thereby negating the gains in happiness that they initially experienced (Myers, 2000). Figure 4 shows how people adapt to an increase in income and form new aspirations based on their income level.  An increase in income brings about a downward shift in the aspiration curve, which neutralizes increases in happiness (Frey & Stutzer, 2002). This may lead one to believe that any policy aimed to improved people’s happiness is futile. However, Brickman and Campbell contrarily show that after people experience an initial uptick in their happiness due to life circumstances, they do not go all the way back to a point of neutrality, but to a point slightly higher than they were before (Brickman & Campbell, 1971).

Figure 4: Happiness and Aspiration Shifts (Frey & Stutzer, 2002)

The following explains the scenario above:

"Initially, people have a certain aspiration level A1 so that income Y1 produces happiness H1. Raising income, say from Y1 to Y2, raises happiness from H1 to H2… However, over time, aspiration adjusts to the higher income level.  The aspiration level curve A1 shifts downward to Am. Ex post, the rise in income from Y1 to Y2 does not produce any increase in happiness…" (Frey & Stutzer, 2002).

Income inequality within a society can lead to unhappiness through failure to meet aspirations.  Juliet Schor noted that in the late 1980’s income inequality grew and people were feeling deprived in comparison to those at the top.  Even people who made $100,000 a year felt poor because they were comparing themselves to the nuevo riche of the day (Schor J. , 1998).

Other factors have also contributed to stagnation or decrease in overall happiness in developed countries.  Both men and women have increased their working hours since the 1950s.  From 1969 - 1987 women have increased their hours yearly by 305 hours and men's hours have increased by 98.  In addition, Americans are working more overtime, and paid time off has been decreasing since the 1980s (Schor J. B., 1991).  The time spent to get to these jobs has also increased.  Commuting is often a solitary and stress-inducing activity (Baker, 2004).

Perhaps the strongest explanation to the paradox of money and happiness lies in how GDP is calculated. GDP analysis shows that the United States has gotten much wealthier as a whole over the past thirty years.  However, by aggregating incomes across classes, GDP masks income distribution.  At the same time that happiness began to stagnate in the US, so did real household wages among the working classes.  Figures 5 and 6 show that prior to 1979 all income brackets were growing relativly equally, but since the 1980s incomes at the top have increased incredibly, while the bottom and middle classes have seen much lower growth rates.   So, while GDP steadily increased, most Americans were not getting significantly richer.

Figure 5: Changes in before-tax household incomes, 1949-1979 (Frank, 2007)

Figure 6: Changes in before-tax incomes, 1979-2003 (Frank, 2007)

Indexes other than GDP may be more suited to capturing life as most humans experience it. Below I will briefly describe a few alternative indicators: the General Progress Indicator, the Happy Planet Index, and the National Accounts of Well-Being.  I have intentionally left out the much-cited Human Development Index.  While the index does indeed provide another perspective on development progress, it uses GDP as an indicator, which does not get us to a new paradigm of progress or development.

Each of these indicators has been accused of being biased towards one policy agenda or another--that they each incorporate value judgments.  Cobb, Halstead, and Rowe point out in If the GDP is up, Why is America so Down? that GDP is also not value-free; in fact, it values the social and environmental aspects of life at zero. It also fails to differentiate between money spent on negative circumstances--such as the revenue from a divorce and the cleanup and restoration efforts after a natural disaster--and money spent positive events (Cobb, Halstead, & Rowe, 1995).

The General Progress Indicator begins with personal consumption expenditures, weighted by an index of inequality in the distribution of income.  Additions to production are made for non-market benefits associated with volunteer work, housework, parenting, and other socially productive efforts as well as services from both household capital and public infrastructure (Talberth, Cobb, & Slattery, 2007).

The Happy Planet Index (HPI) is another more comprehensive index.  It focuses more on the ecological cost of development.  The indicators used are ecological footprint, life-satisfaction and life expectancy (New Economics Foundation, 2009).  The HPI was created by the same organization responsible for the National Accounts of Well-Being and can be used a policy tools in tandem with them.

Development directly affects human well-being. Studies have shown that increasing wealth, whether measured in income growth, GDP, or GDP per capita, does lead to increases in well-being when basic needs are not met.  However, that link has led our policy makers, politicians, and academics to ignore an equally obvious occurrence that after a threshold point in industrial development, that relationship no longer holds up; increasing wealth then has diminishing returns to human well-being.

An increasing awareness of a growing global environmental crisis has prompted worldwide movements to change destructive behaviors. However, the idea of "cutting back" is often falsely associated with reducing one’s happiness or well-being.   Human well-being is at the forefront of development policy and incredibly important to governments around the world, as shown by the Millennium Development Goals.   Development policies need to expand to address the whole spectrum of development—both in developed and developing nations.  By recognizing that increased consumption may not increase human well-being in developed nations, policies may be designed that not only benefit people, but reduce their impact on the planet that sustains them.


Baker, D. (2004). Reassessing the consumer price index. In E. N. Wolff, What Has Happened to the Quality of Life in the Advanced Industrialized Nations? (pp. 81-120). Northhampton : Edward Elgar Publishing Limited.

Bergh, J. C. (2009). The GDP paradox. Journal of Economic Psychology , 30 (2), 117 - 135.

Brickman, P., & Campbell, D. (1971). Hedonic relativism and planning the good society. Adaptation-level Theory , 287-305.

Cobb, C., Halstead, T., & Rowe, a. J. (1995, October). If the GDP is up, why is America so down? The Atlantic Monthly .

Davis, J. A., Smith, T. W., & and Marsden, P. V. (2009). Questions. Retrieved 12 9, 2009, from General Social Survey: http://www.norc.org/GSS/Templates/BaseTemplate.aspx?NRMODE=Published&NRNODEGUID={2E75FB22-4D36-474F-AA28-97D9A2C04B6C}&NRORIGINALURL=/GSS%2bWebsite/FAQs/&NRCACHEHINT=NoModifyGuest#17

Diener, E. (2004). Assessing Subjective Well-Being. Social Indicators Research , 31 (2), 103-157.

Diener, E., & Biswas-Diener, R. (2002). Will Money Increase Subjective Well-Being? Social Indicators Research , 57, 199-169.

Diener, E., Suh, E. M., Lucas, R. E., & Smith, H. L. (1999). Subjective Well-Being: Three Decades of Progress. Psychological Bulletin , 125 (2), 276-302.

Easterlin, R. (1974). Does Economic Growth Improve the Human Lot? Some Empirical Evidence. 89-125.

Frank, R. (2007). Falling Behind: How Rising Inequality Harms the Middle Class. Berkeley: University of California Press.

Frey, B., & Stutzer, A. (2002). What Can Economists Learn From Happiness Research? Journal of Economic Literature , 40 (2), 402-435.

Gallup Inc. (2009). Questions. Retrieved 12 9, 2009, from Gallup: http://www.gallup.com/consulting/worldpoll/108070/Questions.aspx

Graaf, J. d., Wann, D., & Naylor, a. T. (2005). Affluenza. San Francisco: Berrett-Koehler Publishers, Inc.

Greenwood, D. T. (2004). Measuring quality of life with local indicators. In E. N. Wolff, What Has Happened to the Quality of Life in the Advanced Industrialized Nations? (pp. 334-363). Northhampton: Edward Elger Publishing Limited.

Inglehart, R. Foa, C. Peterson & C. Welzel (2008). Development, Freedom and Rising Happiness: A Global Perspective 1981-2007 Perspectives on Psychological Science, 3 (4), 264- 285.

Institute for Innovation in Social Policy. (2009). The Index of Social Health. Retrieved 12 10, 2009, from Institute for Innovation in Social Policy: http://iisp.vassar.edu/ish.html

Kasser, T. (2002). The High Price of Materialism. Cambridge, Mass: MIT Press.

Lane, R. (2000). The Loss of Happiness in Market Democracies. New Haven : Yale University Press.

Latinobarometro. (2009). Data Bank. Retrieved 12 12, 2009, from Latinombarometro: http://www.latinobarometro.org/

Layard, R. (2005). Happiness: Lessons From a New Science. London: Penguin Books.

Myers, D. G. (2000). The American Paradox. New Haven: Yale University Press.

new economics foundation. (2009). calculating the hpi. Retrieved 11 15, 2009, from the happy planet index: http://www.happyplanetindex.org/learn/calculating/

new economics foundation. (2009). Explore. Retrieved 12 9, 2009, from National Accounts of Well-Being: http://nationalaccountsofwellbeing.org/explore/indicators/zwbi

new economics foundation. (2009). National Accounts of Well-Being. London: new economics foundation.

Schor, J. B. (1991). The Overworked American. New York: HarperCollins.

Schor, J. (1998). The Overspent American. New York: Basic Books.

Schyns, P. (1998). Crossnational Differences in Happiness: Economic and Cultural Factors Explored. Social Indicators Research , 43, 3-26.

Scitovsky, T. (1992). The Joyless Economy. Oxford: Oxford University Press.

Sen, A. (1999). Development As Freedom. New York: Anchor Books.

Sieber, S. D. (2005). Second-Rate Nation. Boulder: Paradigm Publishers.

Stevensen, B., & Wolfers, J. (2008). Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox. Washington, D.C.: Brooking Papers on Economic Activity.

Talberth, D. J., Cobb, C., & Slattery, N. (2007). The Genuine Progress Indicator 2006. Oakland: Redefining Progress.

The European Commission. (2009). Eurobarometro. Retrieved 12 12, 2009, from European Commission Public Opinion Analysis: http://ec.europa.eu/public_opinion/index_en.htm

Veenhoven, R. (1991). Is Happiness Relative? Social Indicators Research , 24, 1-31.

Wolff, E. (2004). Recent Trend in Living Standards in the United States. In E. N. Wolff, What has happened to the Quality of Life in Advanced Industrialized Nations? (pp. 3-27). Northhampton: Edward Elger.

Contributor's Biography:

Alison Dalton Smith works in international higher education development at the University Design Consortium at ASU.  Her interest in international development results from having lived in Latin America, Asia, and Europe.  She is particularly interested in the link between consumption and standards of living.