Ori Heffetz

A Test of Conspicuous Consumption: Visibility and Income Elasticities

This paper shows that, consistent with a signaling-by-consuming model à la Veblen, income elasticities can be predicted from the visibility of consumer expenditures. We outline a stylized conspicuous consumption model where income elasticity is endogenously predicted to be higher if a good is visible and lower if it is not. We then develop a survey-based measure of expenditure visibility, ranking different expenditures by how noticeable they are to others. Finally, we show that our visibility measure predicts up to one-third of the observed variation in elasticities across consumption categories in U.S. data.

Preferences for Status: Evidence and Economic Implications

This chapter was prepared for Elseviers Handbook of Social Economics (edited by Jess Benhabib, Alberto Bisin, and Matthew Jackson). It brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications.This chapter brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications. n nJEL Codes: C90, D01, D1, D62, Z10, Z13

HOW LARGE ARE NON-BUDGET-CONSTRAINT EFFECTS OF PRICES ON DEMAND?

Elementary consumer theory assumes that prices affect demand only because they affect the budget constraint (BC). By contrast, several models suggest that prices can affect demand through other channels (e.g. because they signal quality). This alternative conjecture is consistent with evidence from marketing studies. However, neither theory nor evidence is informative regarding the magnitude of non-BC effects. The key econometric challenge arises from the fact that a change in prices typically also changes the BC. This paper uses a lab and a field experiment to disentangle BC from non-BC effects of prices on demand. In our lab experiment we find that, consistent with marketing evidence, prices positively affect stated willingness to pay. However, when examining actual demand, non-BC price elasticities are considerably smaller than BC price elasticities and are often statistically insignificant. Further, these non-BC elasticities do not increase with product uncertainty. Finally, we do not detect any non-BC effects in our field experiment.

Chapter 3 - Preferences for Status: Evidence and Economic Implications*

This chapter was prepared for Elseviers Handbook of Social Economics (edited by Jess Benhabib, Alberto Bisin, and Matthew Jackson). It brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications.This chapter brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications. n nJEL Codes: C90, D01, D1, D62, Z10, Z13

Difficulty to Reach Respondents and Nonresponse Bias: Evidence from Large Government Surveys

How high is unemployment? How low is labor force participation? Is obesity more prevalent among men? How large are household expenditures? We study the sources of the relevant official statistics—the Current Population Survey (CPS), the Behavioral Risk Factor Surveillance System (BRFSS), and the Consumer Expenditure Survey (CEX)—and find that the answers depend on whether we look at easy- or at difficult-to-reach respondents, measured by the number of call and visit attempts made by interviewers. A challenge to the (conditionally-)random-nonresponse assumption, these findings empirically substantiate the theoretical warning against making population-wide estimates from surveys with low response rates.

Cobb-Douglas Utility with Nonlinear Engel Curves in a Conspicuous Consumption Model

We solve Irelands (1994) conspicuous consumption model (where social-status concerns are introduced into the utility function) for Cobb-Douglas (CD) utility. In the resulting generalized CD consumer model, Engel curves are no longer limited to linearity. In the homothetic CD case, total expenditure elasticities are therefore no longer limited to unity. Furthermore, whether a commodity is a luxury or a necessity is determined by whether it is visible or non-visible to society. Cross-commodity variation in the shape of Engel curves is thus derived from a measurable property of commodities. This reopens the possibility of explaining empirically observed consumption patterns with a CD utility model.

Challenges in Constructing a Survey-Based Well-Being Index

Many in both government and academia are showing renewed interest in developing new measures of national well-being. A new measure that goes “beyond GDP” to comprehensively capture non-market goods could be a useful supplement to traditional economic indicators for guiding policy and more accurately tracking welfare. But how should national well-being be conceptualized in theory? How could it be measured in practice? How could it be constructed in a systematic and politically neutral way? These questions should be approached by economists with the same level of care that has been taken in the theoretical and practical development of GDP. In this short paper, we focus on one conceptual framework (Benjamin, Heffetz, Kimball, and Szembrot, 2014), which uses self-reported responses to subjective well-being (SWB) and stated preference (SP) survey questions to construct an index of well-being. We briefly review the framework and highlight challenges in the first two steps a government agency would need to take before conducting the SWB and SP surveys: (1) formulating a set of aspects of well-being that is theoretically valid and can be measured accurately via surveys; and (2) choosing and interpreting the surveys’ response scales.

The relationship between the normalized gradient addition mechanism and quadratic voting

Quadratic voting and the normalized gradient addition mechanism are both social choice mechanisms that confront individuals with quadratic budget constraints, but they are applicable in different contexts. Adapting one or both to apply to the same context, this paper explores the relationship between these two mechanisms in three contexts: marginal adjustments of continuous policies, simultaneous voting on many public choices, and voting on a single public choice accompanied by private monetary consequences. In the process, we provide some formal analysis of quadratic voting when (instead of money) votes are paid for with abstract tokens that are equally distributed by the mechanism designer.

Forgetting and Heterogeneity in Task Delay: Evidence from New York City Parking-Ticket Recipients

We study response behavior of New York City parking-ticket recipients, analyzing administrative data on 6.6 million tickets issued to 2 million individuals over two years. Using variation in the timing of reminder letters, we find evidence consistent with significant forgetting. But we find large differences across individuals, and, importantly, those with a low baseline propensity to respond to tickets–a natural nudge target–react least to reminders. These low-response types, who incur significant late penalties, disproportionately come from already disadvantaged groups. They do react strongly to more incentive-based interventions. We discuss how accounting for effect heterogeneity might change one’s approach to policy, and how one might use our analysis to target interventions at low-response types.