Negatively interdependent preferences

We develop a theory of representation of interdependent preferences that re flect the widely acknowledged phenomenon of keeping up with the Joneses (i. e. of those preferences which maintain that well-being depend on "relative standing" in the society as well as on material consumption). The principal ingredient of our analysis is the assumption that individuals desire to oc cupy a (subjectively) better position than their peers. This is quite a pri mitive starting point in that it does not give any reference to what is act ually regarded as "status" in the society. We call this basic postulate neg ative interdependence, and study its implications. In particular, combining this assumption with some other basic postulates that are widely used in a number of other branches of the theory of individual choice, we axiomatize the relative income hypothesis, and obtain an operational representation o f interdependent preferences.