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Thy Neighbor's Misfortune: Peer Effect on Consumption

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  • Sumit Agarwal
  • Wenlan Qian
  • Xin Zou

Abstract

Using a large, representative sample of credit and debit card transactions in Singapore, this paper studies the consumption response of individuals whose same-building neighbors experienced personal bankruptcy. The unique bankruptcy rules in Singapore suggest liquidity shocks drive personal bankruptcy decisions, leading to a substantial drop in consumption for the bankrupt. Peers' monthly card consumption decreases by 3.4 percent over the 1-year postbankruptcy period. There exists no consumption decrease among individuals in immediately adjacent buildings nor for consumers with diminished postevent social ties with the bankrupt. The findings imply a significant social multiplier effect of 2.8 times the original consumption shock.

Suggested Citation

  • Sumit Agarwal & Wenlan Qian & Xin Zou, 2021. "Thy Neighbor's Misfortune: Peer Effect on Consumption," American Economic Journal: Economic Policy, American Economic Association, vol. 13(2), pages 1-25, May.
    • Handle: RePEc:aea:aejpol:v:13:y:2021:i:2:p:1-25
    DOI: 10.1257/pol.20170634
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    References listed on IDEAS

    as
    1. Ori Heffetz, 2011. "A Test of Conspicuous Consumption: Visibility and Income Elasticities," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1101-1117, November.
    2. Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-373, June.
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    Citations

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    Cited by:

    1. Maria De Paola & Roberto Nisticò & Vincenzo Scoppa, 2024. "Workplace Peer Effects in Fertility Decisions," CSEF Working Papers 714, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Aristide Houndetoungan & Abdoul Haki Maoude, 2024. "Inference for Two-Stage Extremum Estimators," Papers 2402.05030, arXiv.org.
    3. Guillermo Alves & Martín Leites & Gonzalo Salas, 2022. "See it to believe it. Experimental evidence on status good consumption among the youth," Documentos de Trabajo (working papers) 22-12, Instituto de Economía - IECON.
    4. Noam Gruber, 2023. "A relative answer to the growth–saving puzzle," International Finance, Wiley Blackwell, vol. 26(2), pages 139-171, August.
    5. Dahan, Momi & Sayag, Doron, 2024. "Scarcity and consumption priorities," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 108(C).
    6. Aristide Houndetoungan & Abdoul Haki Maoude, 2024. "Inference for Two-Stage Extremum Estimators," THEMA Working Papers 2024-01, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    7. Pirmin Fessler & Severin Rapp, 2023. "The subjective wealth distribution: How it arises and why it matters to inform policy? (Pirmin Fessler, Severin Rapp)," Working Papers 249, Oesterreichische Nationalbank (Austrian Central Bank).
    8. Jiafeng Gu, 2024. "Peer influence, market power, and enterprises' green innovation: Evidence from Chinese listed firms," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 108-121, January.
    9. Agarwal, Sumit & Koo, Kang Mo & Qian, Wenlan, 2022. "Consumption response to temporary price shock: Evidence from Singapore's annual sale event," Journal of Financial Intermediation, Elsevier, vol. 51(C).
    10. Sumit Agarwa & Yongheng Deng & Quanlin Gu & Jia He & Wenlan Qian & Yuan Ren, 2022. "Mortgage Debt, Hand-to-Mouth Households, and Monetary Policy Transmission [Policy intervention in debt renegotiation: evidence from the home affordable modification program]," Review of Finance, European Finance Association, vol. 26(3), pages 487-520.
    11. Li, Teng & Qian, Wenlan & Xiong, Wei A. & Zou, Xin, 2022. "Employee output response to stock market wealth shocks," Journal of Financial Economics, Elsevier, vol. 146(2), pages 779-796.
    12. Einar C. Kjenstad & Anil Kumar, 2022. "The effect of real estate prices on peer firms," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 1022-1053, December.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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