Poverty and Aspirations Failure

This paper models the role of internal constraints in causing aspirations failure at the individual level. It shows how initial disadvantage increases the likelihood of binding internal constraints and hence aspirations failure, thus suggesting a new behavioral explanation for poverty traps. In examining common approaches to relaxing such internal constraints, it describe how an individual’s endogenous choice of a "cognitive window" (i.e. a set of relevant "similar" individuals)can limit the e¤ectiveness of role models. Further, we consider how the distribution of initial status determines the degree of connectedness in a society and hence the individual perception of these constraints. Our work provides a normative justification for programs that aim to empower participants through a direct positive shock to their aspirations.