Does Envy Destroy Social Fundamentals? The Impact of Relative Income Position on Social Capital

Abstract

Research evidence on the impact of relative income position on individual attitudes and behaviour is sorely lacking. Therefore, this paper assesses such positional impact on social capital by applying 14 different measurements to International Social Survey Programme data from 25 countries. We find support for a positional concern effect or 'envy' whose magnitude in several cases is quite substantial. The results indicate that such an effect is non-linear. In addition, we find an indication that absolute income level is also relevant. Lastly, changing the reference group (regional versus national) produces no significant differences in the results.JEL Classification: Z130, H260, I310, D000, D600

Do Positional Concerns Destroy Social Capital: Evidence From 26 Countries

“…2 Clark and Oswald (1996) point out that "the lack of empirical evidence, except of what most economists view as of a circumstantial nature, has kept relative deprivation theory on the periphery of research in economics" (p. 360). 3 The first attempt at analyzing relative income effects for social capital presents the results for four measures only Torgler 2006a, 2006b)-this article extends on that previous work, now including three broad facets of social capital (horizontal trust, vertical trust, and social norm compliance). 4 This article contributes to the recent discussion in two important aspects: first, we develop hypotheses on social comparison effects for different types of social capital-generalized trust (horizontal trust), confidence in institutions (vertical trust), and compliance with norms-based on relative deprivation theory.…”

“…However, following the approach taken by recent empirical happiness research, we believe that aspiration income can be approximated by employing the concept of observable reference income that we define as the median income of the a regional comparison income yields qualitatively identical results. Using a similar specification, results for the regional and national (subsistence/median) income and a graphical representation of main income effects are reported in Torgler (2006a, 2006b).…”

“…This study includes one additional country, increasing the variation in national reference income. The analysis in Fischer and Torgler (2006a) is partly flawed in the way reference income and relative income are defined, causing a quite high correlation which partly hinders statistical identification.…”

Pension Portfolio Choice and Peer Envy

“…Previous models such as those for dependent preferences and habit formation do not evaluate absolute wealth as substantially. Yet, Fischer and Torgler (2006) show that absolute income is important for estimating the effects of relative income. Furthermore, the model I present for envy does not rely on a specific functional form to capture risk aversion whereas models for dependent preferences and habit formation assume very specific functional forms for utility and risk aversion.…”

Individual fairness in Harsanyi’s utilitarianism: operationalizing all-inclusive utility

“…Fairness has a clear interpretation in terms of individual preferences and need not be considered separately by the social planner (Fischer and Torgler 2006;van Winden 2007). Without explicit specification of the individual fairness preferences, however, the approach deprives Harsanyi's theory from predictive power and makes it unfalsifiable.…”