RELATIVE INCOME, ASPIRATION, ENVIRONMENTAL-QUALITY, INDIVIDUAL AND POLITICAL MYOPIA - WHY MAY THE RAT-RACE FOR MATERIAL GROWTH BE WELFARE-REDUCING

This paper pulls together several strands of literature on issues important to social welfare: the environmental impact of production and consumption, the importance of relative-income effects, aspiration and frustration, and the tendency of individuals and politicians to be myopic in intertemporal choices. These factors are compressed into a simple model from which some significant conclusions with significant real-world policy implications are deduced. Economic growth, which appears very important at the individual or even national levels, may reduce social welfare unless it is accompanied by increased environmental protection and/or other welfare-improving measures. Some analyses towards the quantification of the responses of welfare to absolute income, relative income, and aspiration satisfaction are also provided. These responses (in proportionate or elasticity terms) are all smaller at higher levels of the income scale.