Visible inequality, status competition, and conspicuous consumption: evidence from rural India
Oxford Economic Papers
In a world where individuals care about social status as determined by the rank in the distribution of conspicuous consumption among peers, a fall in the level of visible inequality, by intensifying the degree of status competition, is likely to cause individuals to spend more on conspicuous goods which are assumed to carry status. I examine this hypothesis using nationally representative micro data from India. I ...nd that a decrease in the level of visible inequality, ceteris paribus, causes
... is paribus, causes conspicuous consumption of households to increase signi...cantly. This increase in conspicuous spending not only represents consumption distortion, but is also wasteful as it results in no improvement in one's social status due to parallel action of others. From a policy perspective, my ...ndings therefore suggest that traditional policies targeted to reduce economic inequality may have serious unintended consequences. Rather a more e¤ective approach might be to combine such policies with social policies that represses one's desire to compete in status.