The widespread externality produced by the sentiment of envy is modelled in this paper. We show its specific structural properties, the conditions of its existence, the various reasons for its normative relevance, the basic tool of its analysis (“envy‐free preferences”) and its crucial relation with the property of equality of liberty (“equity”). We then show that the envy externality respects the efficiency of classical allocative processes in the relevant conditions (competitive markets with not too unequal incomes, cases with indivisibilities, equal‐freedom individual choices, etc.). We in particular derive conditions of consistency between efficiency and the vanishing of the envy externality, as well as the effects of actual envy on “divide and choose” processes, preferences to reassignment, multidimensional maximin, “egalitarian equivalence”, degrees of envy in society and the rat