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Verhoef, Erik T.
van Wee, Bert
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 00-076/3
Research on 'happiness' suggests that once an average per capitaincome of around US$10,000 is achieved in acountry, further increases in income will not lead to a significantincrease in happiness. Additional income willprobably often be spent on the satisfaction of mainly 'relative'needs, of which 'status goods' would be oneexample. From that perspective, an overall shift to more fuel-efficient cars (i.e. smaller cars with less power) wouldnot necessarily, or only to a limited extent, result in lesshappiness. From a welfare economic perspective, thesatisfaction of the relative needs pertaining to consumption can beconsidered as a form of consumptionexternalities. This creates a welfare economic basis for governmentintervention. A model in which theseconsumption externalities are studied is presented here. Governmentintervention would include stimulatingconsumption of lower-status goods and discouraging consumption ofhigher-status ones. We speculate, however,that to achieve a significant increase in the fuel efficiency of acountry's car fleet through pricing policies, hugeprice increases may often be needed. As acceptance of price increasesas a policy instrument is often low, fee-bates and tradeable permits may be more preferable instruments.
Document Type: 
Working Paper

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