| Summary: | <p>Adam Smith argued that ‘moral sentiments’ – the norms, customs and conventions that are developed in society - provide a benefit to society, improving both economic efficiency and well-being. We take our cue from this insight. Three important moral sentiments are a perception of fairness, a willingness to trust people, and a sense of community We analyse representative national socioeconomic surveys of the China Household Income Project (CHIP), conducted in 2002 and 2013. It contains information that is used to create a happiness score, a fairness score, a trust score, and a community score for each respondent.</p>
<p>Three main hypotheses are tested: that higher reported fairness, higher reported trust, and greater sense of community each raises happiness. In the first case there is strong evidence of a positive association in both rural and urban China. Moreover, we find that a higher sense of fairness ameliorates the adverse effect of reference group income on happiness, especially for the poor. Higher reported trust scores are also strongly associated with greater happiness in both rural and urban China. Average trust scores in the locality are positively associated with happiness, suggesting that a high level of trustworthiness in the community is also valued. Three measures of village sense of community are each associated with greater happiness. Attempts are made to ascertain whether the associations are causal; use of internal instruments provides some support. The possible determinants of reported fairness, trust, and community are investigated, some of which have policy implications. The evidence of the paper is generally consistent with the broader argument that an informal social contract constrains antisocial behaviour and improves wellbeing in ways little studied by economists.</p>
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