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Conspicuous Consumption, Human Capital and Poverty

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Author Info
Moav, Omer
Neeman, Zvika

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Abstract

Poor families around the world spend a large fraction of their income on consumption of goods that appear to be useless in alleviating poverty, while saving at very low rates and neglecting investment in health and education. Such consumption patterns seem to be related to the persistence of poverty. We offer an explanation for this observation, based on a trade-off between conspicuous consumption and human capital as signals for unobserved income, under the assumption that individuals care about their status. Despite homothetic preferences, this trade-off gives rise to a convex saving function, which can help explain the persistence of poverty.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6864.

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Date of creation: Jun 2008
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Handle: RePEc:cpr:ceprdp:6864

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Related research
Keywords: Conspicuous Consumption Human Capital Poverty

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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This page was last updated on 2008-8-19.

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