After a certain ceiling has been reached (around 10,000 US dollars), an increase in average income in any one country will not cause increased personal happiness. Such additional earnings are, in all probability, expended rather on satisfying relative needs. Low fuel efficiency cars (big cars; cars with powerful engines) possible satisfy more relative needs than absolute needs. This is why a general trend towards more economical vehicles does not or hardly causes a reduction in contentment: relative needs satisfaction, coupled with the status aspect, does not need to suffer from this. The satisfying of relative needs and the emergence of status effects in consumption are responsible for inefficient market functioning because of the occurrence of 'consumption externalities'. There is therefore a welfare economic argument for adhering to a regulatory policy in which the consumption of relatively low status goods is encouraged while the consumption of relatively high status goods is discouraged. It might be preferable to introduce policies like 'fee-bates' or negotiable rights rather than to use price policies directed at effecting a trend in the direction of more economical car usage, in view of the sharp price increases required to make the national car volume substantially more economical, and in order to survive the considerable resistance that will be put up to such price rises. (A) See also IRRD E201662.
Samenvatting