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  3. American Economic Journal: Economic Policy
  4. May 2021
  5. Thy Neighbor's Misfortune: Peer Effect on Consumption

Thy Neighbor's Misfortune: Peer Effect on Consumption

  • Sumit Agarwal
  • Wenlan Qian
  • Xin Zou
American Economic Journal: Economic Policy
vol. 13, no. 2, May 2021
(pp. 1-25)
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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.20170634

Additional 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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