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A Model of Social Interactions and Endogenous Poverty Traps

Author

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  • Roland G. Fryer Jr.

    (Harvard University, rfryer@fas.harvard.edu)

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's 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 — creating a trade-off between human capital and cooperation among the group. Second, there exist equilibria which exhibit bipolar human capital investment behavior by individuals of similar ability. Third, as social mobility increases this bipolarization increases. The model's predictions are consistent with the bifurcation of distinctively black names in the mid-1960s, the erosion of black neighborhoods in the 1970s, accusations of `acting white', and the efficacy of certain programs designed to encourage human capital acquisition.

Suggested Citation

  • Roland G. Fryer Jr., 2007. "A Model of Social Interactions and Endogenous Poverty Traps," Rationality and Society, , vol. 19(3), pages 335-366, August.
    • Handle: RePEc:sae:ratsoc:v:19:y:2007:i:3:p:335-366
    DOI: 10.1177/1043463107080450
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    References listed on IDEAS

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    1. James Heckman, 2011. "Policies to foster human capital," Voprosy obrazovaniya / Educational Studies Moscow, National Research University Higher School of Economics, issue 3, pages 73-137.
    2. George J. Borjas, 2021. "Ethnic Capital And Intergenerational Mobility," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 6, pages 107-134, World Scientific Publishing Co. Pte. Ltd..
    3. Roland G. Fryer, Jr., 2006. "A Model of Social Interactions and Endogenous Poverty Traps," NBER Working Papers 12364, National Bureau of Economic Research, Inc.
    4. Roland G. Fryer & Steven D. Levitt, 2004. "The Causes and Consequences of Distinctively Black Names," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 767-805.
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    6. George J. Borjas, 2021. "Ethnicity, Neighborhoods, and Human-Capital Externalities," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 7, pages 135-160, World Scientific Publishing Co. Pte. Ltd..
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    9. Eli Berman, 2000. "Sect, Subsidy, and Sacrifice: An Economist's View of Ultra-Orthodox Jews," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 905-953.
    10. Bowles, Samuel & Gintis, Herbert, 2004. "Persistent parochialism: trust and exclusion in ethnic networks," Journal of Economic Behavior & Organization, Elsevier, vol. 55(1), pages 1-23, September.
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    Cited by:

    1. Oded Stark & Ruxanda Berlinschi, 2021. "Community influence as an explanatory factor why Roma children get little schooling," Public Choice, Springer, vol. 189(1), pages 93-114, October.
    2. Sourav Bhattacharya & Joyee Deb & Tapas Kundu, 2011. "Mobility and Conflict," Working Paper 455, Department of Economics, University of Pittsburgh, revised Mar 2013.
    3. Wagner, Alexander F., 2011. "Relational contracts when the agent's productivity inside the relationship is correlated with outside opportunities," CEPR Discussion Papers 8378, C.E.P.R. Discussion Papers.
    4. Sourav Bhattacharya & Joyee Deb & Tapas Kundu, 2015. "Mobility and Conflict," American Economic Journal: Microeconomics, American Economic Association, vol. 7(1), pages 281-319, February.
    5. Carvalho, Jean-Paul & Koyama, Mark, 2013. "Resisting Education," MPRA Paper 48048, University Library of Munich, Germany.
    6. 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.
    7. Fryer Jr., Roland G. & Torelli, Paul, 2010. "An empirical analysis of 'acting white'," Journal of Public Economics, Elsevier, vol. 94(5-6), pages 380-396, June.
    8. Teodor Sedlarski, 2022. "Individualism, collectivism, social capital, and economic development," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 171-204.
    9. Eguia, Jon X., 2017. "Discrimination and assimilation at school," Journal of Public Economics, Elsevier, vol. 156(C), pages 48-58.

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