Poverty Traps Driven by Family Bargaining

Poverty traps arise when households remain poor due to insufficient capital assets. While traditional mechanisms emphasize occupational choices, re-analysis of Balboni, Bandiera, Burgess, Ghatak and Heil (2022b) suggests that long-run divergence in household capital may be more closely linked to wives' empowerment. To explore this, I develop a dynamic collective household model incorporating intra-household bargaining, where decisions on capital investment and labor allocation are influenced by husbands' conservative social preferences. This framework demonstrates the existence of interpretable multiple steady states that differ in household capital accumulation and wives' labor supply, even in the absence of market frictions. Empirical data validate a distinctive feature of the model: increases in household capital are proportionally linked to increases in women's labor supply. These findings suggest that women's empowerment can effectively complement "big push" policies aimed at poverty reduction.