Reflected Glory Versus Repulsive Envy: How Do the Smiths Feel About the House of the Joneses?*

Abstract

A key question raised regarding conspicuous consumption is whether such consumption leads to positive or negative net externalities. The present paper examines how the presence of luxury and expensive properties within a local area affects the house prices in Taipei City. Positive externalities may be associated with improved urban amenities or reflected glory. Negative externalities may be associated with the adverse reference group effect; that is, repulsive envy. The paper discusses the spillover effects due to changes in neighborhood's housing characteristics, and shows significant spatial patterns in house prices and the importance of socioeconomic influences on house prices.