| I present a theoretical model of conspicuous consumption with an empirical test of its implications. I develop a partial equilibrium model to analyze the change in consumer demand following a mean preserving change in consumption inequality when preferences are interdependent. I model two types conspicuous behaviors, "keeping up with the Joneses" (imitating others) and "running away from the Joneses" (distinguishing oneself from others), with multiple peer groups and peer group effects (envy and snob effects). I find the relationship between a change in peer group consumption inequality and change in demand hinges upon the individual's underlying preference features. I develop an empirical methodology based on a reduced form equation to identify a household's particular preference structure. Using U.S. household expenditure data from 1986 to 2002, I find that households `keep up' with their peer groups expenditures, view clothing, jewelry, personal care, automobiles, alcohol, and tobacco as more conspicuous than health-care, utilities, maintenance, home furnishings, and other transportation purchases, and have a relatively stronger envy effect. Furthermore these preferences are consistent across all racial populations. Given this preference structure, I empirically confirm the positive relationship between a change in peer group consumption inequality and a change in household demand for the more conspicuous goods predicted under my analytical model. |
