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PEER EFFECTS, RISK POOLING, AND STATUS SEEKING: What Explains Gift Spending Escalation in Rural China?

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  • Chen, Xi
  • Zhang, Xiaobo
  • Kanbur, Ravi
Abstract
It has been widely documented that the poor spend a significant proportion of their income on gifts even at the expense of basic consumption. We test three competing explanations of this phenomenon--peer effect, status concern, and risk pooling--based on a census-type primary household survey in three natural villages in rural China and on detailed household records of gifts received on major occasions. We show that gift-giving behavior is largely influenced by peers in reference groups. Status concern is another key motive for keeping up with the Joneses in extending gifts. In particular, poor families with sons spend more on gift giving in proportion to their income than their rich counterparts, in response to the tightening marriage market. In contrast, risk pooling does not seem to be a key driver of the observed gift-giving patterns. However, we show that large windfall income triggers the escalation of competitive gift-giving behavior.
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Suggested Citation

  • Chen, Xi & Zhang, Xiaobo & Kanbur, Ravi, 2012. "PEER EFFECTS, RISK POOLING, AND STATUS SEEKING: What Explains Gift Spending Escalation in Rural China?," Working Papers 128797, Cornell University, Department of Applied Economics and Management.
    • Handle: RePEc:ags:cudawp:128797
    DOI: 10.22004/ag.econ.128797
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    Cited by:

    1. Meinzen-Dick, Ruth Suseela & van Koppen, Barbara & Behrman, Julia & Karelina, Zhenya & Akamandisa, Vincent & Hope, Lesley & Wielgosz, Ben, 2012. "Putting Gender on the Map: Methods for mapping gendered farm management systems in Sub-Saharan Africa," IFPRI discussion papers 1153, International Food Policy Research Institute (IFPRI).
    2. Chen, Xi & Zhang, Xiaobo, 2012. "Costly posturing: relative status, ceremonies and early child development in China:," IFPRI discussion papers 1206, International Food Policy Research Institute (IFPRI).
    3. Chen, Xi & Zhang, Xiaobo, 2017. "Costly Posturing: Ceremonies and Early Child Development in China," IZA Discussion Papers 10662, Institute of Labor Economics (IZA).
    4. Wang, Ruixin, 2015. "Essays on development economics and public economics," Other publications TiSEM e1779514-5b71-4726-925b-2, Tilburg University, School of Economics and Management.
    5. Chen, Xi, 2014. "Fetus, Fasting, and Festival: The Persistent Effects of in Utero Social Shocks," IZA Discussion Papers 8494, Institute of Labor Economics (IZA).
    6. Elena M. Parilina & Alessandro Tampieri, 2018. "Stability and cooperative solution in stochastic games," Theory and Decision, Springer, vol. 84(4), pages 601-625, June.
    7. Mingzhi Hu & Guocheng Xiang & Shihu Zhong, 2021. "The Burden of Social Connectedness: Do Escalating Gift Expenditures Make You Happy?," Journal of Happiness Studies, Springer, vol. 22(8), pages 3479-3497, December.
    8. Jingqi Dang & Mingda Cheng & Chunhui Ye, 2020. "“Depression from Overestimation”: Income, Perception Bias and Children’s Mental Health in China’s Rural Households," Sustainability, MDPI, vol. 12(3), pages 1-30, January.
    9. Bulte, Erwin & Wang, Ruixin & Zhang, Xiaobo, 2018. "Forced gifts: The burden of being a friend," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 79-98.
    10. Wang, Ruixin, 2016. "Who Should I Share Risk with? Gifts can tell : Theory and Evidence from Rural China," Other publications TiSEM 95c6dbed-3f49-4d5a-987e-2, Tilburg University, School of Economics and Management.
    11. Chen, Xi & Zhang, Xiaobo, 2012. "Costly posturing: relative status, ceremonies and early child development in China:," IFPRI discussion papers 1206, International Food Policy Research Institute (IFPRI).
    12. Zhang, Anquan & Ni, Pengfei & Ling, Chen, 2022. "Peer effects in rural housing demand: Evidence from China," China Economic Review, Elsevier, vol. 73(C).
    13. Chen, Xi, 2013. "Relative Deprivation in China," MPRA Paper 48582, University Library of Munich, Germany.
    14. Xi Chen, 2014. "Gift-Giving and Network Structure in Rural China: Utilizing Long-Term Spontaneous Gift Records," PLOS ONE, Public Library of Science, vol. 9(8), pages 1-14, August.
    15. Chen, Xi, 2015. "Status Concern and Relative Deprivation in China: Measures, Empirical Evidence, and Economic and Policy Implications," IZA Discussion Papers 9519, Institute of Labor Economics (IZA).
    16. Wang, Ruixin, 2016. "Who Should I Share Risk with? Gifts can tell : Theory and Evidence from Rural China," Discussion Paper 2016-003, Tilburg University, Center for Economic Research.
    17. repec:unu:wpaper:wp2012-70 is not listed on IDEAS
    18. Kanbur, Ravi, 2013. "Exposure and Dialogue Programs in the Training of Development Analysts and Practitioners," Working Papers 180097, Cornell University, Department of Applied Economics and Management.
    19. Chen, Xi & Sahn, David E. & Zhang, Xiaobo, 2018. "Social Interactions and Stigmatized Behavior: "Donating" Blood Plasma in Rural China," IZA Discussion Papers 11413, Institute of Labor Economics (IZA).

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    Keywords

    Consumer/Household Economics; Public Economics;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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