IDEAS home Printed from https://ideas.repec.org/p/cde/cdewps/327.html
   My bibliography  Save this paper

Social Identity, Local Neighbourhood Effect and Conspicuous Consumption: Evidence From India

Author

Listed:
  • Deepika Kandpal

    (Department of Economics, Delhi School of Economics)

  • Dibyendu Maiti

    (Department of Economics, Delhi School of Economics)

Abstract

The quest for social status is the driving force behind many human decisions including the expenditure on conspicuous goods. Recent evidence shows that conspicuous consumption patterns vary across social groups. Further, rank-based status signalling models suggest that the income distribution of peers affects conspicuous consumption behaviour. Using recent nationally representative microdata from India, this paper investigates the caste-based inequality in conspicuous consumption patterns and the role of income distribution of reference groups in explaining these differences. We find that social identity and economic inequality are essential determinants of conspicuous expenditure. Dalits and Adivasis spend around 7% more on conspicuous items than upper caste households. Consistent with the status signalling models, we find that this gap is significantly influenced by the disparities in the average income of the reference group, within-group income inequality and the share of peers with similar income, denoted by local density. Specifically, local density is found to have a strong influence on household conspicuous consumption decisions. Key Words: Conspicuous consumption, Income distribution, Signalling, Social groups, Social Status JEL Codes: D12, D31, J15

Suggested Citation

  • Deepika Kandpal & Dibyendu Maiti, 2022. "Social Identity, Local Neighbourhood Effect and Conspicuous Consumption: Evidence From India," Working papers 327, Centre for Development Economics, Delhi School of Economics.
    • Handle: RePEc:cde:cdewps:327
    as

    Download full text from publisher

    File URL: http://www.cdedse.org/pdf/work327.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
    2. Kerwin Kofi Charles & Erik Hurst & Nikolai Roussanov, 2009. "Conspicuous Consumption and Race," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 425-467.
    3. Marie-Claire Robitaille, 2020. "Conspicuous Daughters: Exogamy, Marriage Expenditures, and Son Preference in India," Journal of Development Studies, Taylor & Francis Journals, vol. 56(3), pages 630-647, March.
    4. Sung-Ha HwangBy & Jungmin Lee, 2017. "Conspicuous consumption and income inequality," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 870-896.
    5. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
    6. Abhijit V. Banerjee & Esther Duflo, 2007. "The Economic Lives of the Poor," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 141-168, Winter.
    7. ., 2019. "Economic growth and happiness," Chapters, in: Managing without Growth, Second Edition, chapter 9, pages 209-240, Edward Elgar Publishing.
    8. Xavier Fontaine & Katsunori Yamada, 2014. "Caste Comparisons in India: Evidence From Subjective Well-Being Data," Post-Print halshs-01030774, HAL.
    9. Corneo, Giacomo & Jeanne, Olivier, 1999. "Social Organization in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 711-725, August.
    10. Anne Case & Anu Garrib & Alicia Menendez & Analia Olgiati, 2013. "Paying the Piper: The High Cost of Funerals in South Africa," Economic Development and Cultural Change, University of Chicago Press, vol. 62(1), pages 1-20.
    11. repec:hal:pseose:halshs-01030774 is not listed on IDEAS
    12. Giacomo Corneo & Olivier Jeanne, 2001. "Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 283-293, June.
    13. Deshpande, Ashwani, 2011. "The Grammar of Caste: Economic Discrimination in Contemporary India," OUP Catalogue, Oxford University Press, number 9780198072034.
    14. Larry Samuelson, 2004. "Information-Based Relative Consumption Effects," Econometrica, Econometric Society, vol. 72(1), pages 93-118, January.
    15. Perez-Truglia, Ricardo, 2013. "A test of the conspicuous–consumption model using subjective well-being data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 45(C), pages 146-154.
    16. Jessica Harriger-Lin & Neha Khanna & Andreas Pape, 2020. "Conspicuous consumption and peer-group inequality: the role of preferences," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 18(3), pages 365-389, September.
    17. Ori Heffetz, 2011. "A Test of Conspicuous Consumption: Visibility and Income Elasticities," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1101-1117, November.
    18. Mariano Rojas (ed.), 2019. "The Economics of Happiness," Springer Books, Springer, number 978-3-030-15835-4, January.
    19. Francis Bloch & Vijayendra Rao & Sonalde Desai, 2004. "Wedding Celebrations as Conspicuous Consumption: Signaling Social Status in Rural India," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
    20. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    21. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    22. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    23. 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.
    24. Brown, Philip H. & Bulte, Erwin & Zhang, Xiaobo, 2011. "Positional spending and status seeking in rural China," Journal of Development Economics, Elsevier, vol. 96(1), pages 139-149, September.
    25. repec:bla:scandj:v:103:y:2001:i:2:p:283-93 is not listed on IDEAS
    26. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
    27. Barik, Debasis & Desai, Sonalde & Vanneman, Reeve, 2018. "Economic Status and Adult Mortality in India: Is the Relationship Sensitive to Choice of Indicators?," World Development, Elsevier, vol. 103(C), pages 176-187.
    28. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
    29. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    30. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1995. "Incorporating concern for relative wealth into economic models," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 19(Sum), pages 12-21.
    31. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    32. Omer Moav & Zvika Neeman, 2010. "Status and Poverty," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 413-420, 04-05.
    33. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    34. Luis Rayo & Gary S. Becker, 2007. "Habits, Peers, and Happiness: An Evolutionary Perspective," American Economic Review, American Economic Association, vol. 97(2), pages 487-491, May.
    35. Xavier Fontaine & Katsunori Yamada, 2014. "Caste Comparisons in India: Evidence From Subjective Well-Being Data," PSE-Ecole d'économie de Paris (Postprint) halshs-01030774, HAL.
    36. Markus Christen & Ruskin Morgan, 2005. "Keeping Up With the Joneses: Analyzing the Effect of Income Inequality on Consumer Borrowing," Quantitative Marketing and Economics (QME), Springer, vol. 3(2), pages 145-173, June.
    37. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
    38. Fontaine, Xavier & Yamada, Katsunori, 2014. "Caste Comparisons in India: Evidence From Subjective Well-Being Data," World Development, Elsevier, vol. 64(C), pages 407-419.
    39. Elizabeth Currid‐Halkett & Hyojung Lee & Gary D. Painter, 2019. "Veblen goods and urban distinction: The economic geography of conspicuous consumption," Journal of Regional Science, Wiley Blackwell, vol. 59(1), pages 83-117, January.
    40. Saravana Jaikumar & Ankur Sarin, 2015. "Conspicuous consumption and income inequality in an emerging economy: evidence from India," Marketing Letters, Springer, vol. 26(3), pages 279-292, September.
    41. V. Rao, 2001. "Celebrations as Social Investments: Festival Expenditures, Unit Price Variation and Social Status in Rural India," Journal of Development Studies, Taylor & Francis Journals, vol. 38(1), pages 71-97.
    42. Andreas Chai & Wolfhard Kaus & Christian Kiedaisch, 2019. "Conspicuous Spending And The Income Distribution Of Social Groups," Economic Inquiry, Western Economic Association International, vol. 57(3), pages 1324-1341, July.
    43. Daniel Kuhlmann, 2020. "Coveting your neighbour’s house: understanding the positional nature of residential satisfaction," Housing Studies, Taylor & Francis Journals, vol. 35(6), pages 1142-1162, July.
    44. Jinkins, David, 2016. "Conspicuous consumption in the United States and China," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 115-132.
    45. Nattavudh Powdthavee, 2009. "How important is rank to individual perception of economic standing? A within-community analysis," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 7(3), pages 225-248, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Omer Moav and & Zvika Neeman, 2012. "Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital," Economic Journal, Royal Economic Society, vol. 122(563), pages 933-956, September.
    2. Lombardo, Vincenzo, 2012. "Social inclusion and the emergence of development traps," MPRA Paper 36766, University Library of Munich, Germany.
    3. Jaikumar, Saravana & Singh, Ramendra & Sarin, Ankur, 2018. "‘I show off, so I am well off’: Subjective economic well-being and conspicuous consumption in an emerging economy," Journal of Business Research, Elsevier, vol. 86(C), pages 386-393.
    4. König, Tobias & Lausen, Tobias, 2016. "Relative consumption preferences and public provision of private goods," Discussion Papers, Research Unit: Market Behavior SP II 2016-213, WZB Berlin Social Science Center.
    5. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 13_2012, CRISEI, University of Naples "Parthenope", Italy.
    6. Perez Truglia, Ricardo Nicolas, 2007. "Conspicuous consumption in the land of Prince Charming," MPRA Paper 22009, University Library of Munich, Germany, revised 22 Mar 2010.
    7. Tom Truyts, 2010. "Social Status In Economic Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 137-169, February.
    8. Thomas Aronsson & Olof Johansson-Stenman, 2013. "Veblen’s theory of the leisure class revisited: implications for optimal income taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(3), pages 551-578, September.
    9. Vincenzo Lombardo, 2021. "Social inclusion through social status and the emergence of development traps," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 798-825, November.
    10. Li, Linyang, 2018. "Financial inclusion and poverty: The role of relative income," China Economic Review, Elsevier, vol. 52(C), pages 165-191.
    11. Saravana Jaikumar & Ankur Sarin, 2015. "Conspicuous consumption and income inequality in an emerging economy: evidence from India," Marketing Letters, Springer, vol. 26(3), pages 279-292, September.
    12. Muna Shifa & Murray Leibbrandt, 2018. "Relative Economic Position and Subjective Well-Being in a Poor Society: Does Relative Position Indicator Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(2), pages 611-630, September.
    13. Antinyan, Armenak & Horváth, Gergely & Jia, Mofei, 2019. "Social status competition and the impact of income inequality in evolving social networks: An agent-based model," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 53-69.
    14. repec:spo:wpmain:info:hdl:2441/vbu6kd1s68o6r34k5bcm3iopv is not listed on IDEAS
    15. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.
    16. Leites, Martín & Rivero, Analía & Salas, Gonzalo, 2024. "The positionality of goods and the positional concern’s origin," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    17. Kaus, Wolfhard, 2013. "Conspicuous consumption and “race”: Evidence from South Africa," Journal of Development Economics, Elsevier, vol. 100(1), pages 63-73.
    18. Clément Bellet, 2017. "Essays on inequality, social preferences and consumer behavior [Inégalités, préférences sociales et comportement du consommateur]," SciencePo Working papers Main tel-03455045, HAL.
    19. Moav, Omer & Neeman, Zvika, 2008. "Conspicuous Consumption, Human Capital and Poverty," CEPR Discussion Papers 6864, C.E.P.R. Discussion Papers.
    20. Sung-Ha HwangBy & Jungmin Lee, 2017. "Conspicuous consumption and income inequality," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 870-896.
    21. Clément Bellet, 2017. "Essays on inequality, social preferences and consumer behavior [Inégalités, préférences sociales et comportement du consommateur]," SciencePo Working papers tel-03455045, HAL.

    More about this item

    Keywords

    conspicuous consumption; income distribution; signalling; social groups; social status jel codes: d12; d31; j15;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cde:cdewps:327. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sanjeev Sharma (email available below). General contact details of provider: https://edirc.repec.org/data/cdudein.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.