Household debt and social interactions

Georgarakos, D., Haliassos, M. and Pasini, G. (2014) Household debt and social interactions. Review of Financial Studies, 27(5), pp. 1404-1433. (doi: 10.1093/rfs/hhu014)

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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.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Georgarakos, Professor Dimitris
Authors: Georgarakos, D., Haliassos, M., and Pasini, G.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Review of Financial Studies
Publisher:Oxford University Press
ISSN (Online):1465-7368
Published Online:25 February 2014

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