Local Neighbors as Positives, Regional Neighbors as Negatives: Competing Channels in the Relationship between Others' Income, Health, and Happiness

48 Pages Posted: 1 Jun 2016

See all articles by John Ifcher

John Ifcher

Santa Clara University - Leavey School of Business - Economics Department

Homa Zarghamee

Santa Clara University - Leavey School of Business

Carol Graham

Brookings Institution - Center on Social and Economic Dynamics; University of Maryland

Abstract

We develop a theoretical framework that integrates four distinct channels through which others' income can affect utility: public goods, cost of living, expectations of future income, and direct effects (relative income hypothesis and/or altruism). We empirically estimate the relationship with U.S. well-being and health data from Gallup and geographically-based median-income data for ZIP codes and MSAs. The relationship is proximity-dependent: positive (negative) with ZIP-code (MSA) median income as reference income, suggesting that positive (negative) channels dominate locally (regionally) and reconciling seemingly divergent results from the literature. Additional analyses provide evidence of the importance of the public-goods and cost-of-living channels.

Keywords: relative utility, reference group, others' income, relative income hypothesis, subjective well-being, income comparison, happiness

JEL Classification: D6, D31, I31

Suggested Citation

Ifcher, John and Zarghamee, Homa and Graham, Carol, Local Neighbors as Positives, Regional Neighbors as Negatives: Competing Channels in the Relationship between Others' Income, Health, and Happiness. IZA Discussion Paper No. 9934. Available at SSRN: https://ssrn.com/abstract=2786018

John Ifcher (Contact Author)

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Homa Zarghamee

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

Carol Graham

Brookings Institution - Center on Social and Economic Dynamics ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
(202) 797-6022 (Phone)
(202) 797-2968 (Fax)

University of Maryland ( email )

College Park
College Park, MD 20742
United States

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