A Test of Conspicuous Consumption: Visibility and Income Elasticities

44 Pages Posted: 5 Aug 2007 Last revised: 22 Sep 2013

See all articles by Ori Heffetz

Ori Heffetz

Cornell University - S.C. Johnson Graduate School of Management; The Hebrew University of Jerusalem - Department of Economics and Center for Rationality; National Bureau of Economic Research (NBER)

Date Written: April 20, 2010

Abstract

This paper shows that, consistent with a signaling-by-consuming model a la Veblen, income elasticities can be predicted from the visibility of consumer expenditures. We outline a stylized conspicuous consumption model where income elasticity is endogenously predicted to be higher if a good is visible and lower if it is not. We then develop a survey-based measure of expenditure visibility, ranking different expenditures by how noticeable they are to others. Finally, we show that our visibility measure predicts up to one-third of the observed variation in elasticities across consumption categories in U.S. data.

Keywords: cultural visibility of expenditures, conspicuous consumption, total expenditure elasticity, income elasticity, Engel curves, signaling by consuming

JEL Classification: D12, Z13

Suggested Citation

Heffetz, Ori, A Test of Conspicuous Consumption: Visibility and Income Elasticities (April 20, 2010). Review of Economics and Statistics, 93(4): 1101–1117, Available at SSRN: https://ssrn.com/abstract=1004543

Ori Heffetz (Contact Author)

Cornell University - S.C. Johnson Graduate School of Management ( email )

324 Sage Hall
Ithaca, NY 14853
United States

The Hebrew University of Jerusalem - Department of Economics and Center for Rationality

Mount Scopus
Jerusalem, IL Jerusalem 91905
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/~heffetz

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