Keeping up with the Joneses to Impress the Smiths: Conspicuous Consumption in a Society with Income Segregation

Abstract I develop a signalling model to study how income segregation affects conspicuous consumption when neighbourhood income distributions serve as the reference point for social comparisons, while consumers signal to an outside observer. Consumers can have different attitudes to status: conformists have a greater incentive for conspicuous consumption when they have many well-off neighbours, whereas snobs have a greater incentive when they have few well-off neighbours. Despite the neighbourhood income distribution affecting the incentives of snobs and conformists in starkly different ways, I show that conspicuous consumption is always higher in a more segregated society.