Subjective Welfare, Isolation and Relative Consumption

44 Pages Posted: 27 Mar 2007

See all articles by Marcel Fafchamps

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Forhad Shilpi

World Bank - Development Research Group (DECRG)

Date Written: December 2006

Abstract

The recent literature has shown that subjective welfare depends on relative income. Attempts to test this relationship in poor countries have yielded conflicting results, suggesting that the relationship is not universal or only applies above a certain income level. We revisit the issue using data from Nepal. We find a relative consumption effect that is robust, strong in magnitude, and consistent across consumption expenditure categories. We find no evidence that poor households - in a relative or absolute sense - care less about relative consumption than more fortunate ones. Households residing far from markets care more - not less - about the consumption level of their neighbors, suggesting that market interaction is not what makes people care about relative consumption. Household heads having migrated out of their birth district still judge the adequacy of their consumption in comparison with households in their district of origin.

Keywords: Subjective well-being, relative deprivation, rivalry

JEL Classification: I31, O12

Suggested Citation

Fafchamps, Marcel and Shilpi, Forhad, Subjective Welfare, Isolation and Relative Consumption (December 2006). CEPR Discussion Paper No. 6002. Available at SSRN: https://ssrn.com/abstract=976748

Marcel Fafchamps (Contact Author)

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Forhad Shilpi

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

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

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