Thy Neighbor’s Misfortune: Peer Effect on Consumption

Sumit Agarwal*, Wenlan Qian, Xin Zou

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    7 Citations (Scopus)

    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 1-year postbankruptcy period. There exists no consumption decrease among individuals in immediately adjacent buildings nor for consumers with diminished postevent social ties with the bankrupt. The findings imply a significant social multiplier effect of 2.8 times the original consumption shock.

    Original languageEnglish
    Pages (from-to)1-25
    Number of pages25
    JournalAmerican Economic Journal: Economic Policy
    Volume13
    Issue number2
    DOIs
    Publication statusPublished - May 2021

    Scopus Subject Areas

    • Economics, Econometrics and Finance(all)

    Fingerprint

    Dive into the research topics of 'Thy Neighbor’s Misfortune: Peer Effect on Consumption'. Together they form a unique fingerprint.

    Cite this