Conspicuous Consumption: Vehicle Purchases by Non-Prime Consumers

53 Pages Posted: 1 Jun 2021 Last revised: 30 Sep 2021

See all articles by Wenhua Di

Wenhua Di

Federal Reserve Bank of Dallas

Yichen Su

Federal Reserve Bank of Dallas

Date Written: September 30, 2021

Abstract

Consumers with higher income often spend more on luxury goods. As a result, lower-income consumers who seek to increase their perceived income status may be motivated to purchase conspicuous luxury goods. They may also desire to emulate the visible consumption displayed by their wealthier peers. Using a unique vehicle financing dataset, we find that consumers with lower credit scores value vehicle brand prestige more than average consumers. The stronger preferences for prestige lead non-prime consumers to purchase more expensive vehicles than they otherwise would have. We find evidence that the preferences for prestige are driven both by status signaling and peer emulation motives. Furthermore, we show that larger vehicle purchases financed by auto loans lead to worse loan performance and credit standing for non-prime consumers.

Keywords: Conspicuous Consumption, Status, Emulation, Automobile, Show Off, Vehicles, Auto Loan, Creditworthiness, Non-prime, Credit Constraint

JEL Classification: D12, G51, L62

Suggested Citation

Di, Wenhua and Su, Yichen, Conspicuous Consumption: Vehicle Purchases by Non-Prime Consumers (September 30, 2021). Available at SSRN: https://ssrn.com/abstract=3857387 or http://dx.doi.org/10.2139/ssrn.3857387

Wenhua Di

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
Dallas, TX 75201
United States

HOME PAGE: http://www.dallasfed.org/research/economists/di.cfm

Yichen Su (Contact Author)

Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

HOME PAGE: http://https://sites.google.com/site/yichensu89/

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