TY  - JOUR
AU  - Luttmer,Erzo F.P.
TI  - Neighbors as Negatives: Relative Earnings and Well-Being
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10667
PY  - 2004
Y2  - August 2004
UR  - http://www.nber.org/papers/w10667
L1  - http://www.nber.org/papers/w10667.pdf
N1  - Author contact info:
Erzo F.P. Luttmer
6106 Rockefeller Center, Room 305
Department of Economics
Dartmouth College
Hanover, NH 03755
Tel: 603/646-6479
E-Mail: Erzo.FP.Luttmer@Dartmouth.Edu
AB  - 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.
ER  -