Thy Neighbor’s Misfortune: Peer Effect on Consumption

77 Pages Posted: 19 May 2016 Last revised: 23 Jun 2020

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Wenlan Qian

National University of Singapore - NUS Business School

Xin Zou

Hong Kong Baptist University (HKBU)

Date Written: June 23, 2020

Abstract

Using a large, representative sample of credit and debit card transactions in Singapore, this paper studies the consumption response of individuals whose same-building neighbors experienced personal bankruptcy. The unique bankruptcy rules in Singapore suggest liquidity shocks drive personal bankruptcy decisions, leading to a substantial drop in consumption for the bankrupt. Peers’ monthly card consumption decreases by 3.4 percent over the one-year post-bankruptcy period. There exists no consumption decrease among individuals in immediately adjacent buildings, nor for consumers with diminished post-event social ties with the bankrupt. The findings imply a significant social multiplier effect of 2.8 times the original consumption shock.

Keywords: Peer Effect, Social Multiplier, Consumption, Spending, Bankruptcy, Debt, Credit Cards, Household Finance, Banks, Loans, Durable Goods, Discretionary Spending

JEL Classification: D12, D14, D91, E21, E51, E62, G21, H31

Suggested Citation

Agarwal, Sumit and Qian, Wenlan and Zou, Xin, Thy Neighbor’s Misfortune: Peer Effect on Consumption (June 23, 2020). Available at SSRN: https://ssrn.com/abstract=2780764 or http://dx.doi.org/10.2139/ssrn.2780764

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Wenlan Qian (Contact Author)

National University of Singapore - NUS Business School ( email )

15 Kent Ridge Drive
Singapore 117592, 119245
Singapore
(65) 65163015 (Phone)

HOME PAGE: http://sites.google.com/site/wenlanqian/

Xin Zou

Hong Kong Baptist University (HKBU) ( email )

Department of Economics
Kowloon, Hong Kong
Hong Kong

HOME PAGE: http://sites.google.com/site/shirleyxinzou/

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