Festivity spending, rat race, and underdevelopment: A stylized model

We examine the household spending on festivities and their link to underdevelopment. Data from household surveys in Central Asia show the allocation of a substantial part of household income for festivities, often at the expense of essential needs such as food and education. These expenditures, while enhancing social status and broadening social networks, have detrimental effects on health and education outcomes, thereby perpetuating poverty cycles. We build a simple game-theoretic model that highlights the rat-race nature of festivity spending and suggests that financial market liberalization alone might not be sufficient for poverty reduction. Multiple equilibria arise (where poor households are locked in a bad equilibrium with little educational spending and large spending on festivities). Regulating festivity expenses can be Pareto-improving.