The recent literature has shown that subjective welfare depends on relative income. Much of the existing evidence comes from developed economies. What remains unclear is whether this is a universal human trait or an artifact of a prosperous, marketoriented lifestyle. Using data from Nepal, a mountainous country where many households still live in relative isolation, we test whether poorer and more isolated households care less about relative consumption. We find that they do not. We investigate possible reasons for this. We reject that it is due to parental concerns regarding the marriage prospects of their children. But we find evidence in support of the reference point hypothesis put forth by psychologists: household heads having migrated out of their birth district still judge the adequacy of their consumption in comparison with households in their district of origin.

This article examines how economic activity and market participation are distributed across space. Applying a nonparametric von Thunen model to Nepalese data, we uncover a strong spatial division of labour. Non-farm employment is concentrated in and around cities while agricultural wage employment dominates villages located further away. Vegetables are produced near urban centres; paddy and commercial crops are more important at intermediate distances. Isolated villages revert to self-subsistence. Findings are consistent with the von Thunen model of concentric specialisation, corrected to account for city size. Spatial division of labour is closely related to factor endowments and household characteristics, especially at the local level.

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Using survey data from Nepal, we examine the relationship between proximity to urban centres and the organisation of labour. We show that wards located in and near cities have more diversified and more market oriented activities. This suggests the presence of returns to market specialisation in cities. We also find some evidence of returns to hierarchical specialisation. These effects are felt up to four hours of travel time from large cities. Urbanisation is associated with lower female labour market participation and with a more pronounced specialisation of women either in market-related activities or in strictly home-based chores.

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