Consumption peer effects and utility needs in India

We construct a peer effects model where mean expenditures of consumers in one's group affect utility through perceived consumption needs. provide novel method for obtaining identification social interactions models like ours, using ordinary survey data, very few members each are observed. implement the standard household‐level consumer expenditure microdata from India. find that additional rupee spent by peers increases needs, and thereby reduces utility, equivalent 0.25 decrease own expenditures. These costs may be larger richer households, meaning transfers rich to poor could improve even inequality‐neutral welfare, reducing externalities. show welfare gains billions dollars per year might possible replacing government private goods households with providing public or services, reduce effects.