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Fungibility, Labels, and Consumption

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Author Info
Abeler, Johannes () (University of Nottingham)
Marklein, Felix () (Federal Ministry of Finance)
Abstract

Fungibility of money is a central principle in economics. It implies that any unit of money is substitutable for another and that the composition of income is irrelevant for consumption. We find in a field experiment that even in a simple, incentivized setup many subjects do not treat money as fungible. When a label is attached to a part of their budget, subjects change consumption according to the suggestion of the label. A controlled laboratory experiment confirms this result and further shows that subjects with lower mathematical abilities are more likely to violate fungibility. The findings lend support to behavioral models such as narrow bracketing or mental accounting. One implication of our results is that in-kind benefits distort consumption more than usually assumed.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3500.

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Length: 46 pages
Date of creation: May 2008
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Handle: RePEc:iza:izadps:dp3500

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Related research
Keywords: fungibility In-kind benefits mental accounting inframarginal consumers field experiment laboratory experiment

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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    Other versions:
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    Other versions:
  15. Nicholas Barberis & Ming Huang, 2001. "Mental Accounting, Loss Aversion, and Individual Stock Returns," NBER Working Papers 8190, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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