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 impacts conspicuous consumption when neighbourhood income distributions are the reference for social comparisons, but 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, while 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.