Understanding Conspicuous Consumption And Race
Introduction (Via Wharton)
Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. These differences exist among virtually all sub-populations, are relatively constant over time, and are economically large. While racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household’s economic position. Using merged data on race and state-level income, we demonstrate that a key prediction of the status-signaling model — that visible consumption should be declining in reference group income — is strongly borne out in the data for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption.