Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296300 
Year of Publication: 
2022
Citation: 
[Journal:] Quantitative Economics [ISSN:] 1759-7331 [Volume:] 13 [Issue:] 3 [Year:] 2022 [Pages:] 1257-1295
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
We construct a peer effects model where mean expenditures of consumers in one's peer group affect utility through perceived consumption needs. We provide a novel method for obtaining identification in social interactions models like ours, using ordinary survey data, where very few members of each peer group are observed. We implement the model using standard household-level consumer expenditure survey microdata from India. We find that each additional rupee spent by one's peers increases perceived needs, and thereby reduces one's utility, by the equivalent of a 0.25 rupee decrease in one's own expenditures. These peer costs may be larger for richer households, meaning transfers from rich to poor could improve even inequality-neutral social welfare, by reducing peer consumption externalities. We show welfare gains of billions of dollars per year might be possible by replacing government transfers of private goods to households with providing public goods or services, to reduce peer effects.
Subjects: 
C21
C31
D12
Consumer demand
consumption
measurement error
welfare
peer effects
JEL: 
C21
C31
D12
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

Files in This Item:
File
Size
296.68 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.