Thy Neighbor’s Misfortune: Peer Effect on Consumption* Sumit Agarwal†, Wenlan Qian‡, and Xin Zou§ November 2017 * We have benefited from the comments of Chris Carroll, Tullio Jappelli, Michael Haliassos, Erik Hurst, Matti Keloharju, Jessica Pan, Ivan Png, Nagpurnanand Prabhala, Tarun Ramadorai, David Reeb, Nick Souleles, Johannes Stroebel, Bernard Yeung, Brad Barber, and seminar participants at the CEPR Household Finance Conference, Johns Hopkins, USC Marshall, Baruch College, Atlanta Fed, Georgia Institute of Technology, Office of the Comptroller of the Currency, Singapore Management University, Hong Kong University of Science and Technology, Chinese University of Hong Kong, Hong Kong Baptist University, and National University of Singapore. All errors are our own. † Sumit Agarwal, Department of Finance, Georgetown University, Email:
[email protected]. ‡ Wenlan Qian, NUS Business School, Department of Finance, Email:
[email protected]. Please send correspondence to Wenlan Qian. § Xin Zou, Hong Kong Baptist University, Department of Finance and Decision Science, Email:
[email protected]. 1 Thy Neighbor’s Misfortune: Peer Effect on Consumption November 2017 Abstract Using a representative sample of credit and debit card transactions in Singapore, we study the consumption response of individuals whose same-building neighbors experienced personal bankruptcy. The unique setting in Singapore suggests liquidity shocks drive personal bankruptcy and the bankrupts significantly reduce spending afterwards. Peers’ monthly card consumption decreases by 3.4 percent during the one-year period. We find no occupation concentration in the bankruptcy-hit buildings, no consumption decrease among individuals in immediately adjacent buildings, or for consumers with diminished post-event social ties with the bankrupt individual. Our findings imply a significant social multiplier effect of 0.8-1.2 times the original consumption shock.