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Conspicuous Consumption, Human Capital and Poverty

27 Pages Posted: 17 Jun 2008  

Omer Moav

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR)

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics; Boston University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2008

Abstract

Poor families around the world spend a large fraction of their income on consumption of goods that appear to be useless in alleviating poverty, while saving at very low rates and neglecting investment in health and education. Such consumption patterns seem to be related to the persistence of poverty. We offer an explanation for this observation, based on a trade-off between conspicuous consumption and human capital as signals for unobserved income, under the assumption that individuals care about their status. Despite homothetic preferences, this trade-off gives rise to a convex saving function, which can help explain the persistence of poverty.

Keywords: Conspicuous Consumption, Human Capital, Poverty

JEL Classification: D91, O11, O12, O15

Suggested Citation

Moav, Omer and Neeman, Zvika, Conspicuous Consumption, Human Capital and Poverty (June 2008). CEPR Discussion Paper No. DP6864. Available at SSRN: https://ssrn.com/abstract=1146827

Omer Moav (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/academic/moav

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Zvika Neeman

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~zvika/

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-3184 (Phone)
617-353-4449 (Fax)

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