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Fungibility, Labels, and Consumption

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  • Abeler, Johannes

    () (University of Oxford)

  • 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.

Suggested Citation

  • Abeler, Johannes & Marklein, Felix, 2008. "Fungibility, Labels, and Consumption," IZA Discussion Papers 3500, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp3500
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    More about this item

    Keywords

    fungibility; In-kind benefits; mental accounting; inframarginal consumers; field experiment; laboratory experiment;
    All these keywords.

    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, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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