Environmental values and the frame of reference

Wants may be distinguished by the extent to which they are 'positional'. Po sitional wants are determined by one's frame of reference, defined by compa rison with peer-group consumption and by one's own previous consumption. Th e growth in positional wants is not uniquely related to environmental resou rce depletion but the two do strongly overlap. Several implications follow. First, social reductions in positional consumption may yield environmental benefits at little cost to consumers. The costs are, however, spread over time and depend on the rate of adaptation. The strength of the social-refer ence effect determines whether individuals are subject to an 'isolation' or an 'assurance' problem and, hence, the degree to which cuts need to be cen trally imposed if they are to succeed. It is suggested that the negative co nsequences of international positioning could be ameliorated by the replace ment of conventional income accounts by a welfare index that more fully inc orporates environmental costs, Secondly, the neoclassical utility function can be regarded as a special case of the reference-based welfare function, provided that it is restricted to positive explanations of how momentary ch oices are made. Reference-based preferences have more in common with the fi ndings of psychologists and, hence, open a way to consilience between econo mics and natural science. Finally, the frame of reference also allows a dyn amic perspective to the debate on the commensurability of wants. (C) 2001 E lsevier Science B.V. All rights reserved.