Wednesday, October 10, 2007


As I discussed in my last piece, race does not look like it will subside anytime soon as a hot button issue With so many people accusing each other of racism for taking certain positions (e.g. many citizens don’t like affirmative action), it’s a wonder how anyone even dares to explore any topics regarding race.

However, the fear of being accused a racist has yet to take hold of Kerwin Kofi Charles, Erik Hurst, and Nikolai Roussanov, who wrote a paper entitled “Conspicuous Consumption and Race.” From their abstract:

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….[W]e emphasize instead a model of status seeking in which conspicuous consumption is used to reflect a household's economic position relative to a reference group.
Should we get out the pitchforks and start storming university research centers? No, of course not. Remember that even though we are all American, a cornucopia of cultures exists. For one culture to be into cars or jewelry more than another should not come to a surprise.

So, Kofi et al. describe what they are observing as status-seeking. Or, as I have interpreted it, the disparity in consumption is a form of signaling.

But what leads to the disparity? Coming up with a hypothesis, I think this is part of a peer effect manufactured by the general media and black media to black culture. Using the music industry as an example, a lot of material from the rap genre glorifies and tantalizes about an excess life style. Within that life style are the visible goods that Kofi et al. describe.

An important note is to remind ourselves that to call these expenditures good or bad is judgment call that I think hardly anyone qualifies for. For example, a financial advisor may not look too highly upon such goods that hold very little equity and depreciate rather quickly. On the other hand, people’s own utility functions operate in such a manner that almost all of the time the purchases they make are for goods and services that they really want.

So, while my hypothesis above shows that a peer/media effect may explain the reasoning for what some could describe as fleeting purchases, the peer effect for work and co-workers may be an entirely different story.

In fact, according to
a paper by Jonathan Guryan, Kory Kroft, and Matt Notowidigdo, the people with whom we work may not affect our productivity. Now, we are not talking about a team project, or anything of the sort, but rather simply who works around you. The study the authors organized revolved around the pairings made at a golf tournament. Their results show that player’s scores did not falter even if paired with a player who had a considerably larger scoring handicap.

So, while trying to showcase lifestyle may be a product of observing and imitating culture (life imitating art), it seems that when it comes to making money, our influences are constrained only to what works, and in that sense, getting the job done.
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