NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Neighbors as Negatives: Relative Earnings and Well-Being

Erzo F.P. Luttmer

NBER Working Paper No. 10667
Issued in August 2004
NBER Program(s):   PE

This paper investigates whether individuals feel worse off when others around them earn more. In other words, do people care about relative position and does lagging behind the Joneses' diminish well-being? To answer this question, I match individual-level panel data containing a number of indicators of well-being to information about local average earnings. I find that, controlling for an individual's own income, higher earnings of neighbors are associated with lower levels of self-reported happiness. The data's panel nature and rich set of measures of well-being and behavior indicate that this association is not driven by selection or by changes in the way people define happiness. There is suggestive evidence that the negative effect of increases in neighbors' earnings on own well-being is most likely caused by interpersonal preferences people having utility functions that depend on relative consumption in addition to absolute consumption.

download in pdf format
   (382 K)

email paper

This paper is available as PDF (382 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10667

Published: Luttmer, Erzo F. P. "Neighbors As Negatives: Relative Earnings And Well-Being," Quarterly Journal of Economics, 2005, v120(3,Aug), 963-1002.

Users who downloaded this paper also downloaded these:
Stevenson and Wolfers w14282 Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox
Chetty, Friedman, Olsen, and Pistaferri w15617 Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records
Sacks, Stevenson, and Wolfers w16441 Subjective Well-Being, Income, Economic Development and Growth
Blanchflower and Oswald w7487 Well-Being Over Time in Britain and the USA
Di Tella, Haisken-De New, and MacCulloch w13159 Happiness Adaptation to Income and to Status in an Individual Panel
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us