Spending Money Earned by Someone Else on Yourself

with Aaron Enriquez, Ben Gilbert, and Linda Thunström.

Job Market Paper - Paper (PDF)

People frequently spend money earned by others on themselves. Children spend their parents’ money on groceries; romantic partners draw from joint accounts; employees charge business meals to expense accounts. Yet how the source of money affects spending behavior and its psychological experience remains largely untested. This paper investigates how self-earned versus partner-earned money affects willingness to pay and the pain of paying when individuals make personal purchases, using social distance between spender and earner as the organizing theoretical variable.

We develop a theoretical framework in which two competing forces - a windfall benefit from spending unearned funds and a guilt cost from potentially disadvantaging the earner - shape optimal consumption. Social distance governs their relative strength, generating an ambiguous prediction at low social distance and an unambiguous positive effect of other-earned money on consumption at high social distance. To test these predictions, we design two complementary laboratory experiments: a couples experiment using romantic partners to anchor the low end of the social distance spectrum, and a stranger extension using randomly matched strangers to anchor the high end.

Preliminary results from 100 couples (71% of the target sample) find significant average difference in willingness to pay across conditions, consistent with offsetting windfall and guilt effects at low social distance. Pain of paying, however, is substantially higher when spending partner-earned money than self-earned money. The divergence between these outcomes — unchanged behavior alongside a sharply different psychological experience — motivates the stranger extension as a direct test of whether behavioral effects emerge at greater social distance.