Wealth Effects: Networks and Externalities

There are robust and near-universal correlations between numerous individual-level outcomes and economic status. For example, rich people live longer and are more satisfied with their lives.

A question that has long puzzled social scientists is to what extent such relationships result from wealth itself or is due to other factors correlated with economic status. One method to answer this question is to study lottery players.

The fact that lottery prizes are allocated randomly implies that lottery winnings are unrelated to confounding variables and allows researchers to estimate the casual effect of wealth.

Previous lottery studies have shown, for example, that rich people´s higher life satisfaction to large extent is due to having more money, while wealth seems to have a small impact on physical health.

In this project, we instead use lottery winnings to study the effect of wealth on the winners´ immediate surroundings, such as family members, neighbours, and colleagues, and on society at large.

For example, we plan to study how lottery winnings affect neighbours and colleagues´ consumption as well as the entrepreneurship of family members.

This research is important to get a better sense of the total effect of wealth, which in turn is an important input when designing policies, for example the tax and transfer system.