Download this Paper Open PDF in Browser

Thy Neighbor’s Misfortune: Peer Effect on Consumption

65 Pages Posted: 19 May 2016 Last revised: 13 Nov 2017

Sumit Agarwal

Georgetown University - Department of Finance

Wenlan Qian

National University of Singapore - NUS Business School

Xin Zou

Hong Kong Baptist University (HKBU)

Date Written: November 13, 2017

Abstract

Using a large, representative sample of credit and debit card transactions in Singapore, we study the consumption response of individuals whose same-building neighbors experienced personal bankruptcy. The unique bankruptcy rules in Singapore suggest liquidity shocks drive personal bankruptcy and the bankrupts experience severe consumption decrease afterwards. Peers’ monthly card consumption decreases by 3.4 percent over the one-year post-bankruptcy period. We find no occupation concentration in the bankruptcy-hit buildings, no consumption decrease among individuals in immediately adjacent buildings, or for consumers with diminished post-event social ties with the bankrupt individual. Our findings imply a significant social multiplier effect of 0.8-1.2 times the original consumption shock. The response is more pronounced for consumers with greater interaction and is equally strong in the conspicuous and non-conspicuous goods.

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 (November 13, 2017). Available at SSRN: https://ssrn.com/abstract=2780764 or http://dx.doi.org/10.2139/ssrn.2780764

Sumit Agarwal

Georgetown University - Department of Finance ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-8207 (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 )

Kowloon
Hong Kong

Paper statistics

Downloads
277
Rank
93,376
Abstract Views
929