Development Projects and Life Satisfaction: An Impact Study on Fair Trade Handicraft Producers Leonardo Becchetti • Stefano Castriota • Nazaria Solferino Ó Springer Science+Business Media B.V. 2009 Abstract Is there a correspondence between subjective and objective wellbeing indicators in development programs? We investigate this question by evaluating the impact of Fair Trade affiliation on the subjective wellbeing of a sample of Peruvian (treatment and control) producers from two different Fair Trade projects in two socioeconomic environ- ments, one relatively poorer (Juliaca) and the other relatively more affluent (Chulucanas). We find a direct and an indirect effect. The direct effect acts positively via affiliation years in the poorer project and via trade diversification in both projects. The indirect effect acts through the reduction of poverty and relative income. Consistently with the concave income-happiness assumption, the variables generating the indirect effect have a much weaker impact for producers living in the relatively better-off socioeconomic environment, net of the lower FT economic impact in this area. Keywords Life satisfaction Á Poverty Á Development projects Á Fair trade 1 Introduction Whilst studies on the determinants of subjective wellbeing indicators are flourishing 1 and furnish important new insights for the redesign of development and welfare policies in L. Becchetti (&) Á N. Solferino University of Rome Tor Vergata, Rome, Italy e-mail: Becchetti@economia.uniroma2.it S. Castriota University of Trento, Euricse, Italy 1 The empirical literature on the determinants of life satisfaction is extremely large and has become a fertile field for interdisciplinary studies. Because wellbeing is studied from different perspectives by psychologists, sociologists and economists (see, among others, Veenhoven 1993; Blanchflower and Oswald 2004; Cum- mins et al. 2007; Di Tella et al. 2003; Easterlin 2004; Helliwell 2003; Rojas 2005; Frey and Stutzer 2002a, b; Graham and Pettinato 2002; Luttmer 2005; Winkelmann and Winkelmann 1998; Oswald and Powdthavee 2008; Van Praag et al. 2000). In support of the reliability of happiness estimates, we point out that (1) they have a longstanding tradition in psychology and sociology and have therefore undergone a process of 123 J Happiness Stud DOI 10.1007/s10902-009-9179-9