DP6001 Isolation and Subjective Welfare

Author(s): Marcel Fafchamps , Forhad Shilpi

Publication Date: December 2006

Keyword(s): geographical isolation , consumption adequacy , subjective well-being

JEL(s): D60 , I31 , R20

Programme Areas: Development Economics

Link to this Page: www.cepr.org/pubs/dps/DP6001.asp.asp

Using detailed geographical and household survey data from Nepal, this article investigates the relationship between isolation and subjective welfare. This is achieved by examining how distance to markets and proximity to large urban centers affect responses to questions about income and consumption adequacy. Results show that isolation significantly reduce subjective assessments of income and consumption adequacy, even after controlling for consumption expenditures and other factors. Part of this effect can be attributed to lower access to public goods and to a reduction in the variety of consumption items. Equivalent variation estimates suggest that the subjective cost of isolation is large but also that the gain from reduced isolation is largest for households already close to markets.