A Model of Social Interactions and Endogenous Poverty Traps
AbstractThis paper develops a model of social interactions and endogenous poverty traps. The key idea is captured in a framework in which the likelihood of future social interactions with members of one%u2019s group is partly determined by group-specific investments made by individuals. I prove three main results. First, some individuals expected to make group-specific capital investments are worse off because their observed decision is used as a litmus test of group loyalty %u2014 creating a tradeoff between human capital and cooperation among the group. Second, there exist equilibria which exhibit bi-polar human capital investment behavior by individuals of similar ability. Third, as social mobility increases this bi-polarization increases. The models predictions are consistent with the bifurcation of distinctively black names in the mid-1960s, the erosion of black neighborhoods in the 1970s, accusations of %u2018acting white,%u2019 and the efficacy of certain programs designed to encourage human capital acquisition.
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Date of creation: Jul 2006
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Find related papers by JEL classification:
- J0 - Labor and Demographic Economics - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-05 (All new papers)
- NEP-SOC-2006-08-05 (Social Norms & Social Capital)
- NEP-URE-2006-08-05 (Urban & Real Estate Economics)
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