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Boats and tides and "trickle down" theories: What economists presume about wellbeing when they employ stochastic process theory in modeling behavior

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  • Anderson, Gordon

Abstract

Aphorisms that 'rising tides raise all boats' or that material advances of the rich eventually 'trickle down' to the poor are really maxims regarding the nature of stochastic processes that underlay the income/wellbeing paths of groups of individuals. This paper looks at the implications for the empirical analysis of wellbeing of conventional assumptions regarding such processes which are employed by both micro and macro economists in modeling economic behavior. The implications of attributing different processes to different groups in society following the club convergence literature are also discussed. Various forms of poverty, inequality, polarization and income mobility structures are considered and much of the conventional wisdom afforded us by such aphorisms is questioned. To exemplify these ideas the results are applied to the distribution of GDP per capita in the continent of Africa.

Suggested Citation

  • Anderson, Gordon, 2012. "Boats and tides and "trickle down" theories: What economists presume about wellbeing when they employ stochastic process theory in modeling behavior," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 6, pages 1-44.
  • Handle: RePEc:zbw:ifweej:201242
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    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2012-42
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    File URL: https://www.econstor.eu/bitstream/10419/67050/1/730414035.pdf
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    References listed on IDEAS

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    1. Reed, William J., 2001. "The Pareto, Zipf and other power laws," Economics Letters, Elsevier, vol. 74(1), pages 15-19, December.
    2. Simon Burgess & Karen Gardiner & Carol Propper, 2001. "Why rising tides dont lift all boats? An explanation of the relationship between poverty and unemployment in Britain," CASE Papers case46, Centre for Analysis of Social Exclusion, LSE.
    3. James Hines & Hilary Hoynes & Alan B. Krueger, 2001. "Another Look at Whether a Rising Tide Lifts All Boats," Working Papers 833, Princeton University, Department of Economics, Industrial Relations Section..
    4. Richard B. Freeman, 2001. "The Rising Tide Lifts...?," NBER Working Papers 8155, National Bureau of Economic Research, Inc.
    5. Alan Harrison, 1981. "Earnings by Size: A Tale of Two Distributions," Review of Economic Studies, Oxford University Press, vol. 48(4), pages 621-631.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    stochastic processes; poverty; inequality; wellbeing measurement;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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