Social Transmission of Consumption

Abstract

We find that consumption spreads through social networks via a "visibility bias" channel, consistent with the model of Han et al. (2023). Using county-level Facebook connectedness and exogenous fracking shocks, we show that a 1% increase in a closely linked county's consumption raises local spending by 0.35% next year. Heterogeneous effects-stronger among more socially connected households and for socially visible goods-indicate transmission through social observation instead of economic linkages. Without their own income gains, households respond by buying cheaper goods, and peer-induced spending increases delinquency rates, underscoring that biased social observation, rather than economic connectedness, undermines financial stability.

Keywords

Tags of Social Finance