A Test of the Conspicuous-Consumption Model Using Subjective Well-Being Data

20 Pages Posted: 28 Sep 2011 Last revised: 10 May 2013

See all articles by Ricardo Perez-Truglia

Ricardo Perez-Truglia

University of California, Berkeley; National Bureau of Economic Research (NBER)

Date Written: May 2013

Abstract

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.

Keywords: conspicuous consumption, signaling, subjective well-being

JEL Classification: D60, D12

Suggested Citation

Perez-Truglia, Ricardo, A Test of the Conspicuous-Consumption Model Using Subjective Well-Being Data (May 2013). Available at SSRN: https://ssrn.com/abstract=1934007 or http://dx.doi.org/10.2139/ssrn.1934007

Ricardo Perez-Truglia (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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