Capabilities and Choices: Do They Make Sen'se for Understanding Objective and Subjective Well-Being? An Empirical Test of Sen's Capability Framework on German and British Panel Data.

In Sen's Capability Approach (CA) well-being can be defined as the freedom of choice to achieve the things in life which one has reason to value most for his or her personal life. Capabilities are in Sen's vocabulary therefore the real freedoms people have or the opportunities available to them. In this paper we examine the impact of capabilities alongside choices on well-being. There is a lot of theoretical work on Sen's capability framework but still a lack of empirical research in measuring and testing his capability model especially in a dynamic perspective. The contribution of the paper is first to test Sen's theoretical CA approach empirically using 25 years of German and 18 years of British data. Second, to examine to what extent the capability approach can explain long-term changes in well-being and third to view the impact on subjective as well as objective well-being in two clearly distinct welfare states. Three measures of well-being are constructed: life satisfaction for subjective well-being and relative income and employment security for objective well-being. We ran random and fixed effects GLS models. The findings strongly support Sen's capabilities framework and provide evidence on the way capabilities, choices and constraints matter for objective and subjective well-being. Capabilities pertaining to human capital, trust, altruism and risk taking, and choices to family, work-leisure, lifestyle and social behaviour show to strongly affect long-term changes in subjective and objective well-being though in a different way largely depending on the type of well-being measure used.