A Test of the Conspicuous-Consumption Model Using Subjective Well-Being Data
Ricardo Perez Truglia
Harvard University - Department of Economics
According to the conspicuous-consumption theory, people consume highly observable goods to signal their wealth to others. A growing body of evidence favors this signaling model. However, the empirical evidence available is still far from conclusive; thus, we provide evidence from a new angle. We show that the signaling model of conspicuous consumption predicts that a consumer’s well-being should increase based on his or her household’s ranking of observable consumption within its reference group, but should not be affected by its ranking in the distribution of unobservable consumption. We test this prediction using panel data on household expenditure and subjective well-being. Our evidence is consistent with the predictions of the signaling model.
Number of Pages in PDF File: 20
Keywords: conspicuous consumption, signaling, subjective well-being
JEL Classification: D60, D12working papers series
Date posted: September 28, 2011 ; Last revised: May 10, 2013
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