Reference group consumption and the subjective wellbeing of the poor in Peru

This paper studies the relationship between the consumption of the reference group and people’s subjective wellbeing in seven poor Peruvian communities. It presents an empirical analysis of the importance of relative consumption for people’s feelings of adequacy in five consumption domains (food, housing, education, clothes and health care). Against the assumption that relative consumption only matters for the rich and drawing on recent empirical work in Latin America, the study hypothesises that participants are likely to be influenced by the level of consumption of the area where they live when evaluating their situation. The data come from two surveys implemented in 2004 and 2005 in Peru by the Wellbeing in Developing Countries (WeD), ESRC research group at the University of Bath. The results indicate a negative effect of relative consumption on participants’ appraisal of their households’ clothes, housing and children’s education. However, the study also shows that in domains linked to the need for physical health such as health care and food, appraisals are made based on households’ objective situations and that the average consumption in the community does not play a significant role.