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Peer Effect, Risk-Pooling and Status Seeking: Which Matters to Gift Spending Escalation in Rural China?

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  • Chen, Xi
  • Zhang, Xiaobo

Abstract

It has been widely documented that the poor spend a significant proportion of their income on gifts even at the expense of basic consumption. We test three competing explanations to this phenomenon, peer effect, status concern, and risk-pooling, based on a census-type primary household survey in three natural villages in rural China and detailed household records of gifts received in major occasions. The gift giving behavior is largely influenced by peers in the reference groups. Status concern is another key motive for “keeping up with the Joneses” in extending gifts. In particular, the poor with sons spend more on gift giving in proportion to their income than their rich counterparts in response to the tightening marriage market. In contrast, risk pooling does not seem to be a key driver of the observed gift giving patterns. Large windfall income to a large extent triggers the escalation of gift giving behavior.

Suggested Citation

  • Chen, Xi & Zhang, Xiaobo, 2011. "Peer Effect, Risk-Pooling and Status Seeking: Which Matters to Gift Spending Escalation in Rural China?," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103643, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:103643
    DOI: 10.22004/ag.econ.103643
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    References listed on IDEAS

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    1. Christian Ghiglino & Sanjeev Goyal, 2010. "Keeping Up with the Neighbors: Social Interaction in a Market Economy," Journal of the European Economic Association, MIT Press, vol. 8(1), pages 90-119, March.
    2. Antoni Calvó-Armengol & Eleonora Patacchini & Yves Zenou, 2009. "Peer Effects and Social Networks in Education," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(4), pages 1239-1267.
    3. Brown, Philip H. & Bulte, Erwin & Zhang, Xiaobo, 2011. "Positional spending and status seeking in rural China," Journal of Development Economics, Elsevier, vol. 96(1), pages 139-149, September.
    4. Joachim De Weerdt, 2002. "Risk-Sharing and Endogenous Network Formation," WIDER Working Paper Series DP2002-57, World Institute for Development Economic Research (UNU-WIDER).
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    Cited by:

    1. Chen, Xi, 2014. "Fetus, Fasting, and Festival: The Persistent Effects of in Utero Social Shocks," IZA Discussion Papers 8494, Institute of Labor Economics (IZA).
    2. Chen, Xi & Zhang, Xiaobo, 2012. "Costly posturing: relative status, ceremonies and early child development in China:," IFPRI discussion papers 1206, International Food Policy Research Institute (IFPRI).
    3. Xi Chen, 2014. "Gift-Giving and Network Structure in Rural China: Utilizing Long-Term Spontaneous Gift Records," PLOS ONE, Public Library of Science, vol. 9(8), pages 1-14, August.

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