Thy Neighbor's Misfortune: Peer Effect on Consumption
- (pp. 1-25)
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.Citation
Agarwal, Sumit, Wenlan Qian, and Xin Zou. 2021. "Thy Neighbor's Misfortune: Peer Effect on Consumption." American Economic Journal: Economic Policy, 13 (2): 1-25. DOI: 10.1257/pol.20170634Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- K35 Personal Bankruptcy Law
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