Friday, August 11, 2017

Why does new money like bling and old money like discreetness?

[A] puzzling aspect of conspicuous consumption [is that] it is often subtle, in the sense that it is difficult for others to observe and recognize. Handwrought silverware only signals wealth to dinner guests. Someone who wishes to signal his wealth as clearly as possible can do better: acknowledging this puzzle, Bagwell and Bernheim (1996) suggest publishing “tax returns or audited asset statements”.

We argue that people engage in subtly conspicuous consumption to simultaneously signal wealth and social capital. Here, social capital is about connectedness—a measure of the relationships that enable access to potentially valuable resources through social interaction...

Consider the following example. Adam is wealthy and socially well-connected. He can distinguish himself from less wealthy individuals by consuming costly status goods; for example, he might purchase an expensive car to drive around town. However, if Adam seeks to demonstrate that he is well-connected as well as wealthy, his consumption choice also has to distinguish him from wealthy, poorly-connected individuals. Thus, a better option might be buying an expensive painting to display in his living room. His guests, observing the painting, and noting that only Adam’s guests ever observe it, infer that he is well-connected because using this painting as a signal of his type is cost-effective only if Adam’s parties are attended by people who Adam seeks to impress. ...

Conventional wisdom often associates loud consumption with the nouveau riche: those who have recently become wealthy. On the other hand, subtle consumption is associated with old money: those whose families have been wealthy for generations. Our interpretation is that old-money types possess large amounts of social capital, as they have been able to develop social connections over time, whereas the nouveau riche, who acquired wealth only recently, have accumulated little social capital. ...

Many forms of cultural knowledge, such as appreciation of music, art or wine, qualify as subtle status goods in our theory: they (i) are costly to acquire, and (ii) being tacit in nature, can only be recognized through extensive social interaction. ... Taking the perspective that cultural capital serves as a subtle good relative to material status goods, our model predicts that individuals with high social capital prefer cultural consumption, whereas people with low social capital favour material status goods.
--Juan Carlos Carbajal, Jonathan Hall, and Hongyi Li, "Inconspicuous Conspicuous Consumption," on subtle status symbols versus bling

Sunday, August 6, 2017

What happens when churches take government money?

Governments have used vouchers to spend billions of dollars on private education; much of this spending has gone to religiously-affiliated schools. ... We use a dataset of Catholic-parish finances from Milwaukee... We show that vouchers are now a dominant source of funding for many churches; parishes in our sample running voucher-accepting schools get more revenue from vouchers than from worshipers. We also find that voucher expansion prevents church closures and mergers. Despite these results, we fail to find evidence that vouchers promote religious behavior: voucher expansion causes significant declines in church donations and church spending on non-educational religious purposes. The meteoric growth of vouchers appears to offer financial stability for congregations while at the same time diminishing their religious activities.
--Daniel Hungerman, Kevin Rinz, and Jay Frymark, "Beyond the Classroom: The Implications of School Vouchers for Church Finances," on where your treasure is, there will your heart be also