Ceremonial expenditures, informal networks and economic consequences: Evidence from Kyrgyzstan

Abstract

We estimate the effect of spending on festivities on various economic outcomes in an IV framework. The estimates show that ceremonial spending causes reduction in food expenditure. Households with higher spending on festivities are more likely to borrow money. Moreover, children are more likely to miss school in such households. One possible explanation for ceremonial expenditure despite its high economic cost is reliance on informal networks. Using the control function approach, we show that ceremonial spending is the means to maintain these networks. Moreover, ceremonial spending reduces the household's income variation. This suggests that these networks may serve the role of informal insurance. We also distinguish between events that are intertemporarily flexible (such as weddings) and intertemporarily inflexible (such as funerals). Intertemporarily inflexible ceremonial spending is less income elastic and thus may present the biggest financial stress to households.