Signalling to whom? Conspicuous spending and the local density of the social group income distribution
AbstractWe empirically evaluate two competing explanations about how the dispersion of income within social groups affects household spending on visible goods. Using South African household expenditure data, we find evidence that precisely the reverse of the effect predicted by Charles et al. (2009) takes place in that rich households tend to reduce, rather than increase, spending on visible goods as the dispersion of social group income increases. Our results instead support rank-based models of status competition since the number of within-group peers who possess a similar income level is found to be positively correlated with household spending on visible goods. Moreover, we find that the effect of this 'local' density tends to be stronger in the tail regions of the distribution and performs better than other proxies for the overall income distribution used in recent studies. How the range of visible goods used to signal wealth expands as household income grows is also explored.
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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Economics and Evolution with number 2012-18.
Length: 28 pages
Date of creation: 29 Jan 2013
Date of revision:
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-AFR-2013-02-08 (Africa)
- NEP-ALL-2013-02-08 (All new papers)
- NEP-DEM-2013-02-08 (Demographic Economics)
- NEP-HME-2013-02-08 (Heterodox Microeconomics)
- NEP-LTV-2013-02-08 (Unemployment, Inequality & Poverty)
- NEP-PBE-2013-02-08 (Public Economics)
- NEP-URE-2013-02-08 (Urban & Real Estate Economics)
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