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A Test of Conspicuous Consumption: Visibility and Income Elasticities

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  • Ori Heffetz

    (S.C. Johnson Graduate School of Management, Cornell University)

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    Abstract

    This paper shows that, consistent with a signaling-by-consuming model à la Veblen, income elasticities can be predicted from the visibility of consumer expenditures. We outline a stylized conspicuous consumption model where income elasticity is endogenously predicted to be higher if a good is visible and lower if it is not. We then develop a survey-based measure of expenditure visibility, ranking different expenditures by how noticeable they are to others. Finally, we show that our visibility measure predicts up to one-third of the observed variation in elasticities across consumption categories in U.S. data. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00116
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    Bibliographic Info

    Article provided by MIT Press in its journal Review of Economics and Statistics.

    Volume (Year): 93 (2011)
    Issue (Month): 4 (November)
    Pages: 1101-1117

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    Handle: RePEc:tpr:restat:v:93:y:2011:i:4:p:1101-1117

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    Cited by:
    1. Perez-Truglia, Ricardo, 2013. "A test of the conspicuous–consumption model using subjective well-being data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 45(C), pages 146-154.
    2. Friedrichsen, Jana & Engelmann, Dirk, 2013. "Who cares for social image? Interactions between intrinsic motivation and social image concerns," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79746, Verein für Socialpolitik / German Economic Association.
    3. Paul Dolan & Robert Metcalfe, 2013. "Neighbors, knowledge, and nuggets: two natural field experiments on the role of incentives on energy conservation," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 51563, London School of Economics and Political Science, LSE Library.
    4. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute for the Study of Labor (IZA).
    5. Winkelmann, Rainer, 2012. "Conspicuous consumption and satisfaction," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(1), pages 183-191.
    6. Tim Friehe & Mario Mechtel, 2014. "Statuskonsum in Ost- und Westdeutschland: Beeinflusst durch das politische Regime?," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 21(03), pages 31-36, 06.
    7. Melanie Khamis & Nishith Prakash & Zahra Siddique, 2012. "Consumption and Social Identity: Evidence From India," Working papers, University of Connecticut, Department of Economics 2012-28, University of Connecticut, Department of Economics.
    8. Eaton, B. Curtis & Matheson, Jesse A., 2013. "Resource allocation, affluence and deadweight loss when relative consumption matters," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 91(C), pages 159-178.
    9. Vincenzo Lombardo, 2013. "Relative consumption and human capital accumulation," Economics Bulletin, AccessEcon, vol. 33(2), pages 1091-1100.
    10. Wolfhard Kaus, 2010. "Conspicuous Consumption and Race: Evidence from South Africa," Papers on Economics and Evolution, Philipps University Marburg, Department of Geography 2010-03, Philipps University Marburg, Department of Geography.
    11. Omer Moav and & Zvika Neeman, 2012. "Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 122(563), pages 933-956, 09.
    12. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers, CRISEI, University of Naples "Parthenope", Italy 13_2012, CRISEI, University of Naples "Parthenope", Italy.
    13. Hillesheim, Inga & Mechtel, Mario, 2013. "How much do others matter? Explaining positional concerns for different goods and personal characteristics," Journal of Economic Psychology, Elsevier, Elsevier, vol. 34(C), pages 61-77.
    14. Leonhard Lades, 2013. "Explaining shapes of Engel curves: the impact of differential satiation dynamics on consumer behavior," Journal of Evolutionary Economics, Springer, Springer, vol. 23(5), pages 1023-1045, November.
    15. Heffetz, Ori, 2012. "Who sees what? Demographics and the visibility of consumer expenditures," Journal of Economic Psychology, Elsevier, Elsevier, vol. 33(4), pages 801-818.

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