Conspicuous consumption and satisfaction

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.

► New registrations of luxury sport cars in Switzerland increased by 75% between 2001 and 2007.
► The paper attempts to gauge the impact of this development on individual happiness.
► Data come from the Swiss Household Panel.
► The findings support the notion of a negative externality from such conspicuous display of wealth.