Conspicuous Consumption, Human Capital and Poverty

Omer Moav () and Zvika Neeman

No 6864, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Poor families around the world spend a large fraction of their income on consumption of goods that appear to be useless in alleviating poverty, while saving at very low rates and neglecting investment in health and education. Such consumption patterns seem to be related to the persistence of poverty. We offer an explanation for this observation, based on a trade-off between conspicuous consumption and human capital as signals for unobserved income, under the assumption that individuals care about their status. Despite homothetic preferences, this trade-off gives rise to a convex saving function, which can help explain the persistence of poverty.

Keywords: Conspicuous Consumption; Human Capital; Poverty (search for similar items in EconPapers)
JEL-codes: D91 O11 O12 O15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-hap and nep-hrm
Date: Written 2008-06

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