Consumption Network Effects

Stanford University, Stanford CA

Investigators

Abstract

Do peer pressures change the way we consume and save? This project plans to use large scale administrative data for the population of Denmark, coupled with consumption survey data, to study the importance of social influences on household spending. Our goal is to quantify the importance of consumption network effects, and to understand the importance of heterogeneity, the economic mechanism underlying our estimates, and its aggregate implications. We consider three possible mechanisms for the presence of consumption network effects: "keeping-up-with-the-Joneses", conspicuous consumption, and risk sharing. We propose empirical tests that allow us to distinguish between these three different mechanisms. We use our estimates to simulate the aggregate impact of fiscal policies in the presence of consumption social multipliers. The model is identified using the structure of networks formed by co-workers and spouses.