Neighbors as Negatives: Relative Earnings and Well-Being

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ID: 291915
2005
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Abstract
This paper investigates whether individuals feel worse off when others around them earn more. In other words, do people care about relative position, and does "lagging behind the Joneses" diminish well-being? To answer this question, I match individual-level data containing various indicators of well-being to information about local average earnings. I find that, controlling for an individual's own income, higher earnings of neighbors are associated with lower levels of self-reported happiness. The data's panel nature and rich set of measures of well-being and behavior indicate that this association is not driven by selection or by changes in the way people define happiness. There is suggestive evidence that the negative effect of increases in neighbors' earnings on own well-being is most likely caused by interpersonal preferences, that is, people having utility functions that depend on relative consumption in addition to absolute consumption.
Reference Key
openalex_W3125532899 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Erzo F.P. Luttmer
Journal the quarterly journal of economics
Year 2005
DOI
10.1093/qje/120.3.963
URL
https://doi.org/10.1093/qje/120.3.963
Keywords Keywords not found

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