Discussion Paper Details

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Title: Subjective Welfare, Isolation and Relative Consumption

Author(s): Marcel Fafchamps and Forhad Shilpi

Publication Date: December 2006

Keyword(s): relative deprivation, rivalry and subjective well-being

Programme Area(s): Development Economics

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.

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Bibliographic Reference

Fafchamps, M and Shilpi, F. 2006. 'Subjective Welfare, Isolation and Relative Consumption'. London, Centre for Economic Policy Research.