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Consumption Network Effects

Author

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  • Giacomo De Giorgi

    (GSEM University of Geneva)

Abstract

In this paper we study consumption network e¤ects. Does the consumption of our peers a¤ect our own consumption? How large is such e¤ect? What are the economic mechanisms behind it? We use long panel data on the entire Danish population to construct a measure of consumption based on administrative tax records on income and assets. We combine tax record data with matched employer-employee data so that we can construct peer groups based on workplace, which gives us a much tighter, precise, and credible de nition of networks than used in previous literature. We use the available data to construct peer groups that do not perfectly overlap, and as such provide valid instruments derived from the network structure of ones peers group. The longitudinal nature of our data also allow us to estimate xed e¤ects models, which help us tackle reection, self-selection, and common-shocks issues all at once. We estimate non-negligible and statistically signi cant endogenous and exogenous peer e¤ects. Estimated e¤ects are quite relevant for policies as they generate non-negligible multiplier e¤ect. We also investigate what mechanisms generate such e¤ects, distinguishing between "keeping up with the Joneses", a status model, and a more traditional risk sharing view.

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  • Giacomo De Giorgi, 2018. "Consumption Network Effects," 2018 Meeting Papers 692, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:692
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    3. Salvatore Morelli & Anthony Atkinson, 2015. "Inequality and crises revisited," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(1), pages 31-51, April.
    4. Quintana-Domeque, Climent & Wohlfart, Johannes, 2016. "“Relative concerns for consumption at the top”: An intertemporal analysis for the UK," Journal of Economic Behavior & Organization, Elsevier, vol. 129(C), pages 172-194.
    5. Topa, Giorgio & Zenou, Yves, 2015. "Neighborhood and Network Effects," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 561-624, Elsevier.
    6. Wenhua Di & Yichen Su, 2021. "Conspicuous Consumption: Vehicle Purchases by Non-Prime Consumers," Working Papers 2107, Federal Reserve Bank of Dallas.
    7. Dimitris Georgarakos & Michael Haliassos & Giacomo Pasini, 2014. "Household Debt and Social Interactions," Review of Financial Studies, Society for Financial Studies, vol. 27(5), pages 1404-1433.
    8. Knüpfer, Samuli & Rantapuska, Elias & Sarvimäki, Matti, 2017. "Social interaction in the family: Evidence from investors’ security holdings," Research Discussion Papers 25/2017, Bank of Finland.
    9. Kanishka Misra & Paolo Surico, 2014. "Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 84-106, October.
    10. Roychowdhury, Punarjit, 2019. "Peer effects in consumption in India: An instrumental variables approach using negative idiosyncratic shocks," World Development, Elsevier, vol. 114(C), pages 122-137.
    11. Cheng, Zhiming, 2021. "Education and consumption: Evidence from migrants in Chinese cities," Journal of Business Research, Elsevier, vol. 127(C), pages 206-215.
    12. Banuri,Sheheryar & Nguyen,Ha Minh, 2020. "Borrowing to Keep Up (with the Joneses) : Inequality, Debt, and Conspicuous Consumption," Policy Research Working Paper Series 9354, The World Bank.
    13. Jose María Casado, 2018. "The role of the social environment in household consumption decisions in Spain," Economic Bulletin, Banco de España, issue MAR, pages 1-7.
    14. Nosal, K., 2016. "Physician Group Practices and Technology Diffusion: Evidence from New Antidiabetic Drugs," Health, Econometrics and Data Group (HEDG) Working Papers 16/22, HEDG, c/o Department of Economics, University of York.
    15. Curatola, Giuliano & Dergunov, Ilya, 2017. "International capital markets with time-varying preferences," SAFE Working Paper Series 176, Leibniz Institute for Financial Research SAFE.

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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