Household Debt and Social Interactions

Dimitris Georgarakos; Michael Haliassos; Giacomo Pasini

doi:10.1093/rfs/hhu014

Household Debt and Social Interactions

Dimitris Georgarakos^1,2; Michael Haliassos¹; Giacomo Pasini^3,4

¹ Goethe University Frankfurt · ² University of Leicester · ³ Ca' Foscari University of Venice · ⁴ Network for Studies on Pensions, Aging and Retirement

Review of Financial Studies 2014 open access

Can concern with relative standing, which has been shown to influence consumption and labor supply, also increase borrowing and the likelihood of financial distress? We find that perceived peer income contributes to debt and the likelihood of financial distress among those who consider themselves poorer than their peers. We use unique responses describing perceived peer characteristics from a Dutch population-wide survey to handle two major challenges of uncovering social interaction effects on borrowing: (1) debts, unlike conspicuous consumption, are often hidden from peers and (1) location is missing in anonymized data. We employ several approaches to uncover exogenous, rather than correlated, effects.

DOI: 10.1093/rfs/hhu014
Volume: 27 (5)
Pages: 1404-1433
Language: en
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