Working Paper: CEPR ID: DP6002
Authors: Marcel Fafchamps; Forhad Shilpi
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: relative deprivation; rivalry; subjective wellbeing
JEL Codes: I31; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market isolation (D49) | sensitivity to relative consumption (D11) |
| migrant members (F22) | sensitivity to relative consumption (D11) |
| household heads migrated (R23) | consumption adequacy assessment (E21) |
| relative consumption (D11) | subjective satisfaction (D10) |
| own consumption (E20) | subjective welfare (I31) |
| average consumption of neighbors (D19) | subjective welfare (I31) |