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Limited Attention and Income Distribution

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  • Banerjee, Abhijit V.
  • Mullainathan, Sendhil

Abstract

Economists have long been interested in the idea that there is a direct circular relation between poverty and low productivity, and not just one that is mediated by market failures, usually in asset markets. The nutrition-based efficiency wage model (Partha Dasgupta and Debraj Ray, 1987) is the canonical example of models where this happens: However it has been variously suggested (see for example T. N. Srinivasan, 1994) that the link from nutrition to productivity and especially the link from productivity to nutrition is too weak to be any more than a small part of the story. Partha Dasgupta himself acknowledges this when he writes "nutrition-productivity construct provides a metaphor,..., for ... an economic environment harboring poverty traps" (Partha Dasgupta, 1997, page 5). We propose an alternative approach to this question based on the idea that attention is a scarce resource that is important for productivity. Specifically, people may not be able to fully attend to their jobs if they are also worrying about problems at home and being distracted in this way reduces productivity. But not paying attention at home is also costly: early symptoms of a child's sickness may go unnoticed; water may run out at the end of the day; kerosene for lighting lamps at home might run out and make it hard to do homework; etc. Finally, the extent to which home life distracts depends on the nature of home life. Specifically, certain goods (e.g. a good baby sitter, a 24-hour piped water supply, a connection to a power supply grid) can reduce the extent of home life distraction. These three assumptions generate an interesting relation between income and productivity that is at the core of our model. The non-poor in this model, by virtue of owning distraction-saving goods and services at home, are able to focus more on their work. Hence they will be more productive at work and will be able to afford more distraction-saving goods. This simple two-way relationship between income and productivity produces a discontinuity in the relation between human capital and earnings which is certain cases can lead to a poverty trap, even in the absence of any market failures.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 2907518.

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Date of creation: 2008
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Publication status: Published in American Economic Review
Handle: RePEc:hrv:faseco:2907518

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References

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  1. Abhijit V. Banerjee & Esther Duflo, 2008. "What Is Middle Class about the Middle Classes around the World?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 22(2), pages 3-28, Spring.
  2. Dasgupta, Partha, 1997. "Nutritional status, the capacity for work, and poverty traps," Journal of Econometrics, Elsevier, Elsevier, vol. 77(1), pages 5-37, March.
  3. T. N. Srinivasan, 1994. "Destitution: A Discourse," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 32(4), pages 1842-1855, December.
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Cited by:
  1. Oswald, Andrew J. & Proto, Eugenio & Sgroi, Daniel, 2009. "Happiness and Productivity," IZA Discussion Papers, Institute for the Study of Labor (IZA) 4645, Institute for the Study of Labor (IZA).
  2. Omer Moav and & Zvika Neeman, 2012. "Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 122(563), pages 933-956, 09.
  3. Lange, Siri & Mwisongo, Aziza & M├Žstad, Ottar, 2014. "Why don't clinicians adhere more consistently to guidelines for the Integrated Management of Childhood Illness (IMCI)?," Social Science & Medicine, Elsevier, Elsevier, vol. 104(C), pages 56-63.
  4. Abhijit Banerjee & Esther Duflo & Rachel Glennerster, 2011. "Is Decentralized Iron Fortification a Feasible Option to Fight Anemia Among the Poorest?," NBER Chapters, National Bureau of Economic Research, Inc, in: Explorations in the Economics of Aging, pages 317-344 National Bureau of Economic Research, Inc.
  5. Beaman, Lori & Magruder, Jeremy & Robinson, Jonathan, 2014. "Minding small change among small firms in Kenya," Journal of Development Economics, Elsevier, Elsevier, vol. 108(C), pages 69-86.

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