A Model of Social Interactions and Endogenous Poverty Traps
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 â€” 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.
|Date of creation:||2007|
|Date of revision:|
|Publication status:||Published in Rationality and Society|
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- Roland G. Fryer & Steven D. Levitt, 2004.
"The Causes and Consequences of Distinctively Black Names,"
The Quarterly Journal of Economics,
MIT Press, vol. 119(3), pages 767-805, August.
- Roland G. Fryer & Steven D. Levitt, 2003. "The Causes and Consequences of Distinctively Black Names," NBER Working Papers 9938, National Bureau of Economic Research, Inc.
- Edward P. Lazear, 1999.
"Culture and Language,"
Journal of Political Economy,
University of Chicago Press, vol. 107(S6), pages S95-S126, December.
- James J. Heckman, 2000.
"Policies to Foster Human Capital,"
JCPR Working Papers
154, Northwestern University/University of Chicago Joint Center for Poverty Research.
- George J. Borjas, 1991.
"Ethnic Capital and Intergenerational Mobility,"
NBER Working Papers
3788, National Bureau of Economic Research, Inc.
- Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
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