> "A desire to earn more than the neighbors seems to
say that at a level equal to the neighbor, the next
dollar has a (much?) greater return than the prior few
dollars--obviously contradicting the "diminishing"."  

Um...why should we think that?  If my neighbor has X
dollars, why would my going from X to X+1 be a greater
step for me than going from X-1 to X?  The last step
in a journey may be more "satisfying" than the first
since it coincides with the trek being completed, but
does that, in general, strike down the idea of
diminishing returns?  The utility doesn't seem to be
coming from the X+1th dollar per se, rather it seems
to be coming from consuming a good we can call
"beating the joneses".  The utility rise comes from
the consumption of the good, i.e. the psychic benefit
of beating my neighbor in the income race, and not
from any intrinsic value to that particular jump in income.

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