Using a large, representative sample of credit and debit card transactions in Singapore, this paper studies the consumption response of individuals whose same-building neighbors experienced personal bankruptcy. The unique bankruptcy rules in Singapore suggest liquidity shocks drive personal bankruptcy decisions, leading to a substantial drop in consumption for the bankrupt. Peers' monthly card consumption decreases by 3.4 percent over the 1-year postbankruptcy period. There exists no consumption decrease among individuals in immediately adjacent buildings nor for consumers with diminished postevent social ties with the bankrupt. The findings imply a significant social multiplier effect of 2.8 times the original consumption shock.
Agarwal, Sumit, Wenlan Qian, and Xin Zou.
"Thy Neighbor's Misfortune: Peer Effect on Consumption."
American Economic Journal: Economic Policy,
Macroeconomics: Consumption; Saving; Wealth
Household Finance: Household Saving, Borrowing, Debt, and Wealth
Personal Bankruptcy Law