Consumption Network Effects

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 29.06.2011, 12:15 - 13:30


Presentation by 

Giacomo De Giorgi (University of Geneva)


In this paper we study the effects of peers' consumption on own consumption. We use long panel data on the entire Danish population to define our preferred consumption measures. We focus on couples, and combine such consumption measure with matched employer-employee data so that we can construct peer groups based on workplace. A much narrower and more precise definition than the one used in the existing literature. As co-workers self-select and might be susceptible to the identical shocks, we make full use of the available data to construct peer groups that do not perfectly overlap, and as such provide valid instruments derived from the network structure of one' peers group (Bramoullé et al. 2009, De Giorgi et al. 2010). In such instance, the co-workers of co-workers' spouses (our indirect``peers'', i.e. distance 3 in the networks' jargon) guarantee identification of all parameters of interest in a standard linear-in-means regression. In particular, the exogenous characteristics of our friends of friends are valid instruments we can also then estimated a fixed effects model and solv reflection, self-selection and common-shocks issues at once. We estimate substantial endogenous and exogenous effects, i.e. one's group composition and behavior in terms of consumption do substantially affect one's consumption. We precisely estimate an elasticity of own consumption to co-workers consumption of about .3-.4, so that the endogenous effect is quite relevant for policies as it generates a substantial multiplier effect. We also investigate what mechanism generates such effects: a pure keeping up with the Joneses or a pure status model.

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