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A Model of Social Interactions and Endogenous Poverty Traps

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  • Roland G. Fryer, Jr.

Abstract

This 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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12364.

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Date of creation: Jul 2006
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Handle: RePEc:nbr:nberwo:12364

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  1. Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc.
  2. Iannaccone, Laurence R, 1992. "Sacrifice and Stigma: Reducing Free-Riding in Cults, Communes, and Other Collectives," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 271-91, April.
  3. George J. Borjas, 1991. "Ethnic Capital and Intergenerational Mobility," NBER Working Papers 3788, National Bureau of Economic Research, Inc.
  4. Eli Berman, 1998. "Sect, Subsidy, and Sacrifice: An Economist's View of Ultra-Orthodox Jews," NBER Working Papers 6715, National Bureau of Economic Research, Inc.
  5. James J. Heckman, 2000. "Policies to Foster Human Capital," JCPR Working Papers 154, Northwestern University/University of Chicago Joint Center for Poverty Research.
  6. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
  7. George J. Borjas, 1994. "Ethnicity, Neighborhoods, and Human Capital Externalities," NBER Working Papers 4912, National Bureau of Economic Research, Inc.
  8. Roland G. Fryer, Jr. & Paul Torelli, 2005. "An Empirical Analysis of 'Acting White'," NBER Working Papers 11334, National Bureau of Economic Research, Inc.
  9. David Austen-Smith & Ronald G. Fryer, 2005. "An Economic Analysis of 'Acting White'," Discussion Papers 1399, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Roland G. Fryer & Steven D. Levitt, 2003. "The Causes and Consequences of Distinctively Black Names," NBER Working Papers 9938, National Bureau of Economic Research, Inc.
  11. David Austen-Smith & Roland G. Fryer, 2005. "An Economic Analysis of "Acting White"," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 551-583, May.
  12. Samuel Bowles & Herbert Gintis, 1998. "The Evolution of Strong Reciprocity," Research in Economics 98-08-073e, Santa Fe Institute.
  13. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
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Cited by:
  1. Alejandro Gaviria & Carlos Medina & María del Mar Palau, 2007. "Las Consecuencias Económicas De Un Nombre Atípico. El Caso Colombiano," DOCUMENTOS CEDE 003108, UNIVERSIDAD DE LOS ANDES-CEDE.
  2. Fryer, Roland G. & Levitt, Steven D. & Kahn, Lisa & Spenkuch, Jörg L., 2010. "The Plight of Mixed Race Adolescents," MPRA Paper 23099, University Library of Munich, Germany.
  3. Sourav Bhattacharya & Joyee Deb & Tapas Kundu, 2011. "Mobility and Conflict," Working Papers 455, University of Pittsburgh, Department of Economics, revised Mar 2013.
  4. Roland G. Fryer, Jr, 2010. "The Importance of Segregation, Discrimination, Peer Dynamics, and Identity in Explaining Trends in the Racial Achievement Gap," NBER Working Papers 16257, National Bureau of Economic Research, Inc.

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