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Peer Effects, Risk Pooling, and Status Seeking: What Explains Gift Spending Escalation in Rural China?

43 Pages Posted: 20 Jan 2012  

Xi Chen

Department of Health Policy and Management; Yale University - Department of Economics; Yale University - Yale Institution for Social and Policy Studies; IZA

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Xiaobo Zhang

International Food Policy Research Institute (IFPRI)

Date Written: January 2012

Abstract

It has been widely documented that the poor spend a significant proportion of their income on gifts even at the expense of basic consumption. We test three competing explanations of this phenomenon - peer effect, status concern, and risk pooling - based on a census-type primary household survey in three natural villages in rural China and on detailed household records of gifts received on major occasions. We show that gift-giving behavior is largely influenced by peers in reference groups. Status concern is another key motive for keeping up with the Joneses in extending gifts. In particular, poor families with sons spend more on gift giving in proportion to their income than their rich counterparts, in response to the tightening marriage market. In contrast, risk pooling does not seem to be a key driver of the observed gift-giving patterns. However, we show that large windfall income triggers the escalation of competitive gift-giving behavior.

Keywords: ceremony, gift giving, peer effects, risk pooling, social network, status seeking

JEL Classification: D63, D85, R20

Suggested Citation

Chen, Xi and Kanbur, Ravi and Zhang, Xiaobo, Peer Effects, Risk Pooling, and Status Seeking: What Explains Gift Spending Escalation in Rural China? (January 2012). CEPR Discussion Paper No. DP8777. Available at SSRN: https://ssrn.com/abstract=1988708

Xi Chen (Contact Author)

Department of Health Policy and Management ( email )

60 College St
New Haven, CT 06520
United States

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Yale University - Yale Institution for Social and Policy Studies ( email )

77 Prospect Street
New Haven, CT 06520
United States

HOME PAGE: http://isps.yale.edu/team/xi-chen

IZA ( email )

Ravi Kanbur

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Xiaobo Zhang

International Food Policy Research Institute (IFPRI) ( email )

2033 K Street, NW
Washington, DC 20006
United States
202-862-5677 (Phone)
202-467-4439 (Fax)

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