Who Cares About Relative Deprivation?

47 Pages Posted: 5 Jan 2006

See all articles by Martin Ravallion

Martin Ravallion

Georgetown University

Michael Lokshin

World Bank - Development Research Group (DECRG); National Research University Higher School of Economics

Date Written: December 2005


Theories of relative deprivation predict negative welfare effects when friends and neighbors become better-off. Other theories point to likely positive benefits. The authors encompass both views within a single model, which motivates their tests using a survey for Malawi that collected data on satisfaction with life, own economic welfare, and the perceived welfare of friends and neighbors. Their methods help address likely biases in past tests found in the literature. In marked contrast to research for industrial countries, the authors find that relative deprivation is generally not a concern for most of their sample, although it does appear to matter to the comparatively well off. Their results provide a welfarist explanation for the priority given to absolute poverty in poor countries. The pattern of externalities also suggests that there will be too much poverty and inequality in this economy, even judged solely from the point of view of aggregate efficiency.

Keywords: Poverty, relative deprivation, risk-sharing, externalities, subjective welfare

JEL Classification: D63, I31, O12

Suggested Citation

Ravallion, Martin and Lokshin, Michael, Who Cares About Relative Deprivation? (December 2005). World Bank Policy Research Working Paper No. 3782. Available at SSRN: https://ssrn.com/abstract=873669

Martin Ravallion (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

Michael Lokshin

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
Washington, DC 20433
United States
202-473-1772 (Phone)
202-522-1153 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/mlokshin

National Research University Higher School of Economics

Myasnitskaya street, 20
Moscow, Moscow 119017

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