Household Debt and Social Interactions
48 Pages Posted: 29 Nov 2012
Date Written: November 16, 2012
Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey representative of the Dutch population, that circumvents the issue of defining the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We employ a number of approaches to rule out spurious associations and to handle correlated effects.
Keywords: Household finance, household debt, social interactions, mortgages, consumer credit, informal loans
JEL Classification: G11, E21
Suggested Citation: Suggested Citation