Emulation and state-by-state variations in bankruptcy rates

Abstract

This paper explores differences in personal bankruptcy rates across the American states. Particular emphasis is given to the Veblenian idea of emulative consumption where a desire to “keep up with the Jones”’ results in over-borrowing leading eventually to bankruptcy. The paper posits an empirical model that incorporates a set of standard variables mentioned in the literature and variables specifically related to emulation, income level, income distribution and urbanization. Using state level pooled data for the period 2000–2009 the paper finds that the more unequal the distribution of income in a state and the more urban the state, the greater the bankruptcy rate in the state. These basic findings point to emulative consumption behavior as an important factor in explaining differences in personal bankruptcies across the states.