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|
|Contact details of provider:|| Postal: Littauer Center, Cambridge, MA 02138|
Web page: http://www.economics.harvard.edu/
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- Edward P. Lazear, 1995.
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NBER Working Papers
5249, National Bureau of Economic Research, Inc.
- Roland G. Fryer & Steven D. Levitt, 2004. "The Causes and Consequences of Distinctively Black Names," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 767-805.
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NBER Working Papers
7288, National Bureau of Economic Research, Inc.
- James Heckman, 2000. "Policies to Foster Human Capital," Working Papers 0028, Harris School of Public Policy Studies, University of Chicago.
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- George J. Borjas, 1992. "Ethnic Capital and Intergenerational Mobility," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 123-150.
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