Revealed Preference for Relative Status: Evidence from the Housing Market

Abstract

This paper investigates the value individuals place on their relative status in consumption, as opposed to absolute status. Using observed housing sales from three Ohio MSAs in 2000, we employ a spatial hedonic price model to estimate the total marginal willingness-to-pay for both relative and absolute characteristics of housing units. Using this revealed-preference approach, we find evidence that strongly suggests that while individuals do desire relative status, they value absolute status considerably more. For instance, our estimates indicate that if all homes in Columbus were to increase in size by 100 square feet the average house would increase in sale price by \$559, suggesting that the absolute effect of having more house dominates the relative effect of neighboring homes increasing as well.

Keywords: Happiness, social welfare, revealed preferences, spatial econometrics, housing market

JEL Classification: D630, Z100, R310