Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital

37 Pages Posted: 19 Dec 2010

See all articles by Omer Moav

Omer Moav

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

Zvika Neeman

Boston University

Date Written: November 8, 2010

Abstract

Poor families around the world spend a large fraction of their income consuming goods that do not appear to alleviate poverty, while saving at low rates. We suggest that individuals care about economic status and hence we interpret this behavior as conspicuous consumption that is intended to provide a signal about unobserved income. We show that if human capital is observable and provides some information about income, a signaling equilibrium can emerge in which expected expenditure on conspicuous consumption as a fraction of total income is decreasing with income. This equilibrium results in an increasing marginal propensity to save that might generate a poverty trap.

Keywords: Conspicuous Consumption, Human Capital, Poverty, Status, Saving

JEL Classification: D91, O11, O12, O15

Suggested Citation

Moav, Omer and Neeman, Zvika, Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital (November 8, 2010). Available at SSRN: https://ssrn.com/abstract=1727272 or http://dx.doi.org/10.2139/ssrn.1727272

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)

London
United Kingdom

Zvika Neeman

Boston University

595 Commonwealth Avenue
Boston, MA 02215

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