IDEAS home Printed from https://ideas.repec.org/p/bno/worpap/2021_10.html
   My bibliography  Save this paper

Peer effects and debt accumulation: Evidence from lottery winnings

Author

Listed:
  • Magnus A. H. Gulbrandsen

Abstract

I estimate the effect of lottery winnings on peers' debt accumulation using administrative data from Norway. I identify neighbors of lottery winners, and estimate an average debt response of 2.1 percent of the lottery prize among households that live up to ten houses from the winner. Analyzing heterogeneity, I find that neighborhood characteristics and shared characteristics with the winner matter for the debt response: there is a tendency for greater effects for those (1) residing closest to the winner, (2) residing in single-household dwellings, (3) with a longer tenure, and (4) with a household structure similar to that of the winner. Finally, estimates of the (imputed) expenditure response among neighbors indicate that they accumulate debt to finance increased spending, consistent with a "keeping-up-with-the Joneses" type explanation, where neighbors react to each others expenditure.

Suggested Citation

  • Magnus A. H. Gulbrandsen, 2021. "Peer effects and debt accumulation: Evidence from lottery winnings," Working Paper 2021/10, Norges Bank.
    • Handle: RePEc:bno:worpap:2021_10
    as

    Download full text from publisher

    File URL: https://hdl.handle.net/11250/2827721
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Leonardo Bursztyn & Robert Jensen, 2017. "Social Image and Economic Behavior in the Field: Identifying, Understanding, and Shaping Social Pressure," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 131-153, September.
    2. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    3. Bramoullé, Yann & Djebbari, Habiba & Fortin, Bernard, 2009. "Identification of peer effects through social networks," Journal of Econometrics, Elsevier, vol. 150(1), pages 41-55, May.
    4. Giacomo De Giorgi & Anders Frederiksen & Luigi Pistaferri, 2020. "Consumption Network Effects," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 130-163.
    5. Atif Mian & Amir Sufi & Emil Verner, 2017. "Household Debt and Business Cycles Worldwide," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1755-1817.
    6. Andreas Fagereng & Martin B. Holm & Gisle J. Natvik, 2021. "MPC Heterogeneity and Household Balance Sheets," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 1-54, October.
    7. Peter Kuhn & Peter Kooreman & Adriaan Soetevent & Arie Kapteyn, 2011. "The Effects of Lottery Prizes on Winners and Their Neighbors: Evidence from the Dutch Postcode Lottery," American Economic Review, American Economic Association, vol. 101(5), pages 2226-2247, August.
    8. Olivier Coibion & Yuriy Gorodnichenko & Marianna Kudlyak & John Mondragon, 2020. "Greater Inequality and Household Borrowing: New Evidence from Household Data," Journal of the European Economic Association, European Economic Association, vol. 18(6), pages 2922-2971.
    9. Fagereng, Andreas & Halvorsen, Elin, 2017. "Imputing consumption from Norwegian income and wealth registry data," Journal of Economic and Social Measurement, IOS Press, issue 1, pages 67-100.
    10. Moritz Drechsel-Grau & Fabian Greimel, 2018. "Falling Behind: Has Rising Inequality Fueled the American Debt Boom?," 2018 Meeting Papers 1032, Society for Economic Dynamics.
    11. Leonardo Bursztyn & Florian Ederer & Bruno Ferman & Noam Yuchtman, 2014. "Understanding Mechanisms Underlying Peer Effects: Evidence From a Field Experiment on Financial Decisions," Econometrica, Econometric Society, vol. 82(4), pages 1273-1301, July.
    12. Sergio Currarini & Matthew O. Jackson & Paolo Pin, 2009. "An Economic Model of Friendship: Homophily, Minorities, and Segregation," Econometrica, Econometric Society, vol. 77(4), pages 1003-1045, July.
    13. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    14. Giacomo De Giorgi & Michele Pellizzari & Silvia Redaelli, 2010. "Identification of Social Interactions through Partially Overlapping Peer Groups," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 241-275, April.
    15. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1687-1726.
    16. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    17. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
    18. Roth, Paula, 2020. "Inequality, Relative Deprivation and Financial Distress: Evidence from Swedish Register Data," Working Paper Series 1374, Research Institute of Industrial Economics.
    19. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    20. Scott Hankins & Mark Hoekstra & Paige Marta Skiba, 2011. "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 961-969, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bonan, Jacopo & Battiston, Pietro & Bleck, Jaimie & LeMay-Boucher, Philippe & Pareglio, Stefano & Sarr, Bassirou & Tavoni, Massimo, 2021. "Social interaction and technology adoption: Experimental evidence from improved cookstoves in Mali," World Development, Elsevier, vol. 144(C).
    2. Moritz Drechsel-Grau & Fabian Greimel, 2018. "Falling Behind: Has Rising Inequality Fueled the American Debt Boom?," 2018 Meeting Papers 1032, Society for Economic Dynamics.
    3. Di, Wenhua & Su, Yichen, 2024. "Conspicuous consumption: Vehicle purchases by non-prime consumers," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 895-914.
    4. Alejandra Agustina Martínez, 2023. "Raise your Voice! Activism and Peer Effects in Online Social Networks," Working Papers 277, Red Nacional de Investigadores en Economía (RedNIE).
    5. Arthur Lewbel & Samuel Norris & Krishna Pendakur & Xi Qu, 2022. "Consumption peer effects and utility needs in India," Quantitative Economics, Econometric Society, vol. 13(3), pages 1257-1295, July.
    6. Vincent Boucher & Yann Bramoullé, 2020. "Binary Outcomes and Linear Interactions," AMSE Working Papers 2038, Aix-Marseille School of Economics, France.
    7. Aghamolla, Cyrus & Thakor, Richard T., 2022. "IPO peer effects," Journal of Financial Economics, Elsevier, vol. 144(1), pages 206-226.
    8. Ghiglino,C. & Langtry, A., 2023. "Status Substitution and Conspicuous Consumption," Cambridge Working Papers in Economics 2324, Faculty of Economics, University of Cambridge.
    9. Alastair Langtry & Christian Ghinglino, 2023. "Status substitution and conspicuous consumption," Papers 2303.07008, arXiv.org, revised Dec 2024.
    10. Rhys Murrian & Paul A. Raschky & Klaus Ackermann, 2024. "Friends, Key Players and the Adoption and Use of Experience Goods," Monash Economics Working Papers 2024-17, Monash University, Department of Economics.
    11. Beugnot, Julie & Fortin, Bernard & Lacroix, Guy & Villeval, Marie Claire, 2019. "Gender and peer effects on performance in social networks," European Economic Review, Elsevier, vol. 113(C), pages 207-224.
    12. Francesco Drago & Friederike Mengel & Christian Traxler, 2020. "Compliance Behavior in Networks: Evidence from a Field Experiment," American Economic Journal: Applied Economics, American Economic Association, vol. 12(2), pages 96-133, April.
    13. Antonia Grohmann & Sahra Sakha, 2015. "The Effect of Peer Observation on Consumption Choices: Experimental Evidence," Discussion Papers of DIW Berlin 1525, DIW Berlin, German Institute for Economic Research.
    14. Daichi Shimamoto & Yasuyuki Todo & Yu Ri Kim & Petr Matous, 2022. "Identifying and decomposing peer effects on decision-making using a randomized controlled trial," Empirical Economics, Springer, vol. 63(2), pages 1029-1058, August.
    15. de Paula, Aureo & Rasul, Imran & Souza, Pedro, 2018. "Identifying Network Ties from Panel Data: Theory and an Application to Tax Competition," CEPR Discussion Papers 12792, C.E.P.R. Discussion Papers.
    16. Sumit Agarwal & Vyacheslav Mikhed & Barry Scholnick, 2016. "Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies," Working Papers 16-4, Federal Reserve Bank of Philadelphia.
    17. Wenhua Di & Yichen Su, 2021. "Conspicuous Consumption: Vehicle Purchases by Non-Prime Consumers," Working Papers 2107, Federal Reserve Bank of Dallas.
    18. Samuli Knüpfer & Elias Rantapuska & Matti Sarvimäki, 2023. "Social Interaction in the Family: Evidence from Investors’ Security Holdings," Review of Finance, European Finance Association, vol. 27(4), pages 1297-1327.
    19. Hema Yoganarasimhan, 2012. "Impact of social network structure on content propagation: A study using YouTube data," Quantitative Marketing and Economics (QME), Springer, vol. 10(1), pages 111-150, March.
    20. Anastasia Girshina & Thomas Y. Mathä & Michael Ziegelmeyer, 2019. "Peer effects in stock market participation: Evidence from immigration," BCL working papers 137, Central Bank of Luxembourg.

    More about this item

    Keywords

    peer effects; debt accumulation; income shocks; network homophily; household finance;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bno:worpap:2021_10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nbgovno.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.