Thy Neighbor's Misfortune: Peer Effect on Consumption

Sumit Agarwal, Wenlan Qian and Xin Zou

American Economic Journal: Economic Policy, 2021, vol. 13, issue 2, 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.

JEL-codes: E21 G51 K35 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (26)

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DOI: 10.1257/pol.20170634

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