EXTERNALITIES
Layard mentions seven examples of external effects.
• Income. If other people's income increases, I become less satisfied with my own income.
• Work. If my friend receives a performance bonus, I feel I should have one too.
• Family life. If divorce becomes more common, I feel less secure.
• Community. If a transient population moves into my neighborhood, I am more likely to be mugged.
• Health. If more social networks form in my neighborhood, I am less likely to become depressed.
• Freedom. If people cannot speak their mind, I am impoverished.
• Values. If other people become more selfish, my life becomes harder.
This list of examples demonstrates Layard' s broad and social interpretation of the externality-concept. In his vision values are important for happiness, since happiness depends on the gap - or correspondence - between people's wants and people's actual property like cars and bedrooms (p. 139). People's needs depend in their turn on changing values; people get used to what they have and, comparing themselves with other people, they usually adapt their values and want more. These comparisons permanently create bigger or smaller gaps between reality and needs with negative or positive effects on happiness. In this way social comparison by one individual always creates external effects in the interaction between other people; as is demonstrated in Layard's seven examples of external effects.