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Affluence: More Relative Than Absolute

Part of the Social Indicators Research Series book series (SINS,volume 76)

Abstract

Previous studies on the relationship between consumption and subjective well-being do assume that well-being emerges out of the relationship between the person and her consumption bundle, with no role at all for contextual factors such as other people’s consumption.

This chapter studies the importance that contextual factors play in the relationship between subjective well-being and ownership of durable goods. It takes advantage of a large and representative survey implemented in Mexico in 2014 to study the importance of absolute and relative effects in the ownership of durable goods. A relative effect takes place when well-being is attained from the relative standing the goods provide; this is, from having what others do not have. An absolute effect takes place when well-being from consumption is independent of what other people have. The distinction between relative and absolute effects matters because it has important well-being implications: Generalized increases in ownership of durable goods trigger well-being only when the absolute effect is positive and significant.

This research shows that the absolute effect in the ownership of durable goods is small in the case of Economic satisfaction and practically nil in the case of Life satisfaction. It is also shown that the relative effect is very large, indicating that both life satisfaction and economic satisfaction are highly sensitive to relative standings in the possession of durable goods. Hence, the conveniences and services that many durable goods provide seem to generate little well-being, while most of the well-being benefits emerge from having what others do not have. This is a major issue because it may trigger a kind of status race which may end up being a social trap: people own more durable goods but have no more well-being. The chapter also shows that the phenomenon replicates in the specific case of owning a car: the greater well-being reported by those who own a car emerges from the superior social status it is associated to, rather than by the conveniences and comfort that car ownership provides.

Keywords

  • Life satisfaction
  • Economic satisfaction
  • Durable goods
  • Relative effect
  • Absolute effect

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Notes

  1. 1.

    The literature on interdependence of preferences is the exception to this individualistic approach (Kapteyn and van Herwaarden 1980; Kapteyn et al. 1978, 1997; Postlewaite 1998; and Sacerdote 2001).

  2. 2.

    The using of ad-hoc criteria to construct reference groups is frequent in the literature (Stutzer 2004; Luttmer 2005; Senik 2004, 2007; McBride 2001; Kingdon and Knight 2007; and Ferrer-i-Carbonell 2005).

  3. 3.

    The ownership of a car is positively associated to household income and to person’s education level. It is also related to age in an inverted-U way.

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Appendix

Table 7.A1 Principal component analysis

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Rojas, M. (2019). Affluence: More Relative Than Absolute. In: Brulé, G., Suter, C. (eds) Wealth(s) and Subjective Well-Being. Social Indicators Research Series, vol 76. Springer, Cham. https://doi.org/10.1007/978-3-030-05535-6_7

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  • DOI: https://doi.org/10.1007/978-3-030-05535-6_7

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