Working Paper: NBER ID: w14593
Authors: Christopher P. Barrington-Leigh; John F. Helliwell
Abstract: Departures from self-centred, consumption-oriented decision making are increasingly common in economic theory and are well motivated by a wide range of behavioural data from experiments, surveys, and econometric inference. A number of studies have shown large negative externalities in individual subjective well-being due to neighbours' incomes. These reflect the role of nearby households as comparison groups acting in individuals' reference-dependent preferences over income or consumption. At the same time, there are many reasons to expect positive spillovers from having prosperous neighbours. We combine high-resolution geographic data from three Canada-wide social surveys and the 2001 census to disentangle the spatial pattern of reference groups in urban areas and to identify channels of positive and negative spillovers on life satisfaction. We find evidence of significant effects of others' income at different scales and are able to reject a number of alternative explanations for the findings.
Keywords: life satisfaction; income comparison; social interactions; urban geography
JEL Codes: D60; H00; J00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income (D31) | Life Satisfaction (I31) |
| Geographic Context (R12) | Life Satisfaction (I31) |
| Relative Income Comparisons (D31) | Life Satisfaction (I31) |
| Geographic Fixed Effects (C23) | Income and Life Satisfaction (J17) |
| Familiarity with Region (R23) | Relative Income Effect (D31) |