Wednesday, June 25, 2008

Revealed Preferences for Relative Status

Naked Self-Promotion:
As promised, here is a new working paper by Susane Daniels and myself. Titled "Revealed Preference for Relative Status: Evidence from the U.S. Housing Market."

This paper investigates the value individuals place on their relative status in consumption, as opposed to absolute status. Using housing data from five Ohio MSAs, we employ a spatial Durbin hedonic price model to estimate willingness to pay for both relative and absolute status. Using this revealed-preference approach, we find individuals, on average, are willing to pay $7,332 per 100 square feet for an increase in absolute house size, compared with $2,257 for an equivalent increase in relative house size. This strongly suggests that while individuals do desire relative status, they value absolute status significantly more.

Susane Daniels is entering her 4th year of the Econ Ph.D. program here at WVU, and is extremely promising. This is the lead essay of her excellent dissertation on Revealed Preferences for Relative Status. In the other essays, she examines the "relative to who" question, as well as breaking the results down by quintile to tease out the "who cares?"

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