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Success, Survive or Escape? Aspirations and Poverty Traps

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  • David Chivers

    () (Durham Business School)

Abstract

I present a model of occupational choice where an agent decides whether to invest in a project that yields risky returns or a project that yields safe returns. An agentís utility is affected by the presence of an aspiration level which will only be satisÖed if their Önal income is above the poverty line. I show that agents who are sufficiently above the poverty line will invest in the risky project and are able to aspire for success. An agent, however, who is just above the poverty line, may be so concerned about falling into poverty that they choose to invest in the safe project. These individuals aspire only to survive. Alternatively, if an agent is su¢ ciently below the poverty line, then they will invest in the risky project even if expected returns are lower than the safe project. These individuals have "nothing left to lose" and therefore aspire to escape. Two forms of poverty traps emerge from the resulting equilibria: one above the poverty line, and one below the poverty line. Finally, I o§er empirical support for the model based on individual level survey data across a large number of ountries.Keywords: Poverty Traps, Entrepreneurship, Aspirations, Loss aversion, Development

Suggested Citation

  • David Chivers, 2017. "Success, Survive or Escape? Aspirations and Poverty Traps," Working Papers 2017_06, Durham University Business School.
  • Handle: RePEc:dur:durham:2017_06
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Poverty, ambition & reference levels
      by chris in Stumbling and Mumbling on 2017-05-25 17:12:17

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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