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Social externalities, overlap and the poverty trap

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  • Young-Chul Kim

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  • Glenn Loury

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Abstract

Previous studies find that some social groups are stuck in poverty traps because of network effects. However, these studies do not carefully analyze how these groups overcome low human capital investment activities. Unlike previous studies, the model in this paper includes network externalities in both the human capital investment stage and the subsequent career stages. This implies that not only the current network quality, but also the expectations about future network quality affect the current investment decision. Consequently, the coordinated expectation among the group members can play a crucial role in the determination of the final state. We define “overlap” for some initial skill ranges, whereby the economic performance of a group can be improved simply by increasing expectations of a brighter future. We also define “poverty trap” for some ranges, wherein a disadvantaged group is constrained by its history, and we explore the egalitarian policies to mobilize the group out of the trap. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Young-Chul Kim & Glenn Loury, 2014. "Social externalities, overlap and the poverty trap," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 535-554, December.
  • Handle: RePEc:kap:jecinq:v:12:y:2014:i:4:p:535-554
    DOI: 10.1007/s10888-013-9268-1
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    References listed on IDEAS

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    Cited by:

    1. Michael O. Harhay & Mary C. Smith Fawzi & Sacha Jeanneret & Damascène Ndayisaba & William Kibaalya & Emily A. Harrison & Dylan S. Small, 2017. "An assessment of the Francois-Xavier Bagnoud poverty alleviation program in Rwanda and Uganda," International Journal of Public Health, Springer;Swiss School of Public Health (SSPH+), vol. 62(2), pages 241-252, March.
    2. Karachiwalla, Naureen, 2013. "A teacher unlike me: Social distance, learning, and intergenerational mobility in developing countries," MPRA Paper 64439, University Library of Munich, Germany, revised 22 May 2015.

    More about this item

    Keywords

    Group inequality; Network externality; Overlap; Poverty trap; I30; J15; Z13;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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