Would it be great to live someplace where everyone had Ferraris and Porsches?
Maybe not — when the number of luxury cars in a neighborhood goes up, people’s happiness with their income goes down:
Traditional tools of welfare economics identify the envy-related welfare loss from conspicuous consumption only under very strong assumptions. Measured income and life satisfaction offers an alternative for estimating such consumption externalities. The approach is developed in the context of luxury car consumption (Ferraris and Porsches) in Switzerland. Results from household panel data and fixed effects panel regressions suggest that the prevalence of luxury cars in the municipality of residence has a negative impact on own income satisfaction.
Source: “Conspicuous consumption and satisfaction” from Journal of Economic Psychology, Volume 33, Issue 1, February 2012, Pages 183-191
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