Conspicuous Consumption: Vehicle Purchases by Non-Prime Consumers

Wenhua Di and Yichen Su

No 2107, Working Papers from Federal Reserve Bank of Dallas

Abstract: Consumers with higher income often spend more on luxury goods. As a result, lower-income consumers who seek to increase their perceived income and social status may be motivated to purchase conspicuous luxury goods. Lower-income consumers may also desire to emulate the visible consumption displayed by their wealthier peers. Using a unique vehicle financing dataset, we find that consumers with lower credit scores value vehicle brand prestige more than average consumers. The stronger preferences for prestige lead non-prime consumers to purchase more expensive vehicles than they otherwise would have. We find evidence that the preferences for prestige are driven both by status signaling and peer emulation motives. Furthermore, we show that larger vehicle purchases financed by auto loans lead to worse loan performance and credit standing for non-prime consumers.

Keywords: Conspicuous Consumption; Status; Emulation; Automobile; Show Off; Vehicles; Auto Loan; Creditworthiness; Non-Prime (search for similar items in EconPapers)
JEL-codes: D12 G51 L62 (search for similar items in EconPapers)
Pages: 56
Date: 2021-06-04
New Economics Papers: this item is included in nep-tre and nep-ure
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DOI: 10.24149/wp2107

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