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Conspicuous Consumption, Human Capital and Poverty

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  • Moav, Omer
  • Neeman, Zvika

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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Keywords: Conspicuous Consumption; Human Capital; Poverty;

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  19. Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
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Cited by:
  1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2009. "Envy And Inequality," Departmental Working Papers 2009-03, McGill University, Department of Economics.
  2. Ubfal, Diego, 2012. "How General Are Time Preferences? Eliciting Good-Specific Discount Rates," IZA Discussion Papers 6774, Institute for the Study of Labor (IZA).
  3. Khamis, Melanie & Prakash, Nishith & Siddique, Zahra, 2012. "Consumption and social identity: Evidence from India," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 353-371.

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