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A Model of Social Interactions and Endogenous Poverty Traps

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  • Roland G. Fryer, Jr.

Abstract

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 — creating a tradeoff between human capital and cooperation among the group. Second, there exist equilibria which exhibit bi-polar human capital investment behavior by individuals of similar ability. Third, as social mobility increases this bi-polarization increases. The models 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.

Suggested Citation

  • Roland G. Fryer, Jr., 2006. "A Model of Social Interactions and Endogenous Poverty Traps," NBER Working Papers 12364, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12364
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    1. George J. Borjas, 2021. "Ethnic Capital And Intergenerational Mobility," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 6, pages 107-134, World Scientific Publishing Co. Pte. Ltd..
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    3. George J. Borjas, 2021. "Ethnicity, Neighborhoods, and Human-Capital Externalities," World Scientific Book Chapters, in: Foundational Essays in Immigration Economics, chapter 7, pages 135-160, World Scientific Publishing Co. Pte. Ltd..
    4. Roland G. Fryer & Steven D. Levitt, 2004. "The Causes and Consequences of Distinctively Black Names," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(3), pages 767-805.
    5. Edward P. Lazear, 1999. "Culture and Language," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 95-126, December.
    6. 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.
    7. Eli Berman, 2000. "Sect, Subsidy, and Sacrifice: An Economist's View of Ultra-Orthodox Jews," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 905-953.
    8. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
    9. Samuel Bowles & Herbert Gintis, 1998. "The Evolution of Strong Reciprocity," Research in Economics 98-08-073e, Santa Fe Institute.
    10. David Austen-Smith & Roland G. Fryer, 2005. "An Economic Analysis of "Acting White"," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 551-583.
    11. David Austen-Smith & Ronald G. Fryer, 2005. "An Economic Analysis of 'Acting White'," Discussion Papers 1399, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Roland G. Fryer, Jr. & Paul Torelli, 2005. "An Empirical Analysis of 'Acting White'," NBER Working Papers 11334, National Bureau of Economic Research, Inc.
    13. Iannaccone, Laurence R, 1992. "Sacrifice and Stigma: Reducing Free-Riding in Cults, Communes, and Other Collectives," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 271-291, April.
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    Cited by:

    1. Roland G. Fryer Jr. & Lisa Kahn & Steven D. Levitt & Jörg L. Spenkuch, 2012. "The Plight of Mixed-Race Adolescents," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 621-634, August.
    2. Roland G. Fryer, Jr, 2010. "The Importance of Segregation, Discrimination, Peer Dynamics, and Identity in Explaining Trends in the Racial Achievement Gap," NBER Working Papers 16257, National Bureau of Economic Research, Inc.
    3. Sourav Bhattacharya & Joyee Deb & Tapas Kundu, 2015. "Mobility and Conflict," American Economic Journal: Microeconomics, American Economic Association, vol. 7(1), pages 281-319, February.
    4. Tavis Barr, 2009. "With Friends Like These: Endogenous Labor Market Segregation with Homogeneous, Nonprejudiced Agents," American Journal of Economics and Sociology, Wiley Blackwell, vol. 68(3), pages 703-746, July.
    5. Gaviria, Alejandro & Medina, Carlos & Palau, María del Mar, 2010. "Las consecuencias económicas de un nombre atípico. El caso colombiano," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(307), pages 535-556, julio-sep.
    6. Roland G. Fryer Jr., 2007. "A Model of Social Interactions and Endogenous Poverty Traps," Rationality and Society, , vol. 19(3), pages 335-366, August.

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    JEL classification:

    • J0 - Labor and Demographic Economics - - General

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