Car Ownership and Status Implications for Fuel Efficiency Policies from the Viewpoint of Theories of Happiness and Welfare Economics

Research on ‘happiness ’ suggests that once an average per capita income of around US $ 10,000 is achieved in a country, further increases in income will not lead to a significant increase in happiness. Additional income will probably often be spent on the satisfaction of mainly ‘relative ’ needs, of which ‘status goods ’ would be one example. From that perspective, an overall shift to more fuel-efficient cars (i.e. smaller cars with less power) would not necessarily, or only to a limited extent, result in less happiness. From a welfare economic perspective, the satisfaction of the relative needs pertaining to consumption can be considered as a form of consumption externalities. This creates a welfare economic basis for government intervention. A model in which these consumption externalities are studied is presented here. Government intervention would include stimulating consumption of lower-status goods and discouraging consumption of higher-status ones. We speculate, however, that to achieve a significant increase in the fuel efficiency of a country’s car fleet through pricing policies, huge price increases may often be needed. As acceptance of price increases as a policy instrument is often low, ‘fee-bates ’ and tradeable permits may be more preferable instruments. 1