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

4 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)

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