Conspicuous Consumption and Peer Effects: Evidence from a Randomized Field Experiment

Abstract

Relative concerns over status goods imply that peer effects in conspicuous consumption are an important determinant of consumption patterns. I use data from a cluster-randomized cash transfer program from Indonesia to test for peer effects in conspicuous consumption. Using data on the visibility of a variety of goods, I examine whether peer effects in consumption differ by consumption visibility. In line with a model of conspicuous consumption, I find that the expenditure share of visible goods rises for households whose peers’ visible consumption is exogenously increased. Finally, I shed light on the social mechanisms underlying peer effects in consumption.

Keywords: Conspicuous Consumption, Peer Effects, Status Concerns, Spillovers, Social Interactions, Social Norms, Reference-dependent Preferences

JEL Classification: D12, C21, I38