Poor’s behaviour and inequality traps: the role of human capital
We evaluate whether and how the persistence of inequality and the presence of inequality traps carry over the persistence of poverty and possible aggregate economic inefficiencies. We propose a microeconomic formalization of one possible definition of poverty and of the behaviour of poor and rich agents. Poverty is defined as lack of or low societal participation, which is source of both a direct private benefit and an indirect gain. Analysing poverty under the individual rational choice, we are able to endogeneize the threshold amount of the participation good needed to join the additional indirect benefit as well as the threshold level of income - the poverty line - needed to buy that amount; further we find the conditions for their existence which in turn determine also their level. In an overlapping generation structure we show that in economies starting largely poor two equilibria exist; one low locally stable equilibrium to which low and middle-income class converge and one upper locally unstable over the which richer classes of income enter an explosive path, with unbounded growth rates of personal income. In the rich regime the whole population enter the explosive path, with unbounded growth rates. We are able to enrich the dynamics a là Galor and Zeira (1993) in an economic environment with perfect capital markets, instead of the assumption of markets imperfections, by introducing a methodological innovation which connects the presence of the externality in the human capital accumulation of the children directly to the preference of parents. By further restricting the functional form of the initial income distribution to be lognormal we find that the mean income and the variance (i.e. inequality) of the richer part of the distribution are always higher than the ones of the lower part; moreover, while within the poor class inequality tends to zero in the very long-run, within the richer class inequality is increasing at an increasing rate. Finally, a negative relation between initial inequality and economic growth is observed. The inequality traps which cause the poor regime to emerge are also sources of aggregate economic inefficiencies, which can be eliminated by reducing income disparities accordingly.
|Date of creation:||Nov 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May.
- Abhijit V. Banerjee & Esther Duflo, 2007.
"The Economic Lives of the Poor,"
Journal of Economic Perspectives,
American Economic Association, vol. 21(1), pages 141-168, Winter.
- Abhijit V. Banerjee & Andrew F. Newman, 1990.
"Occupational Choice and the Process of Development,"
911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
- Banerjee, Abhijit Vinayak & Benabou, Roland & Mookherjee, Dilip (ed.), 2006. "Understanding Poverty," OUP Catalogue, Oxford University Press, number 9780195305203, March.
- Galor, Oded & Zeira, Joseph, 1988.
"Income Distribution and Macroeconomics,"
51644, University Library of Munich, Germany, revised 01 Sep 1989.
- Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
- Marianne Bertrand & Sendhil Mullainathan & Eldar Shafir, 2004.
"A Behavioral-Economics View of Poverty,"
American Economic Review,
American Economic Association, vol. 94(2), pages 419-423, May.
- Gradstein, Mark & Justman, Moshe, 1997.
" Democratic Choice of an Education System: Implications for Growth and Income Distribution,"
Journal of Economic Growth,
Springer, vol. 2(2), pages 169-83, July.
- Mark Gradstein & Moshe Justman, . "Democratic Choice of an Education System: Implications for Growth and Income Distribution," CARESS Working Papres 97-05, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Benabou, Roland, 1996. "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 237-64, April.
- Galor, Oded & Tsiddon, Daniel, 1997.
"Technological Progress, Mobility, and Economic Growth,"
American Economic Review,
American Economic Association, vol. 87(3), pages 363-82, June.
- Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
- Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
- C. Berti Ceroni, 1998.
"Poverty Traps and Human Capital Accumulation,"
315, Dipartimento Scienze Economiche, Universita' di Bologna.
- Durlauf, Steven N, 1996.
" A Theory of Persistent Income Inequality,"
Journal of Economic Growth,
Springer, vol. 1(1), pages 75-93, March.
- Bourguignon, Francois & Ferreira, Francisco H. G. & Walton, Michael, 2006.
"Equity, Efficient and Inequality Traps: A Research Agenda,"
Working Paper Series
rwp06-025, Harvard University, John F. Kennedy School of Government.
- François Bourguignon & Francisco Ferreira & Michael Walton, 2007. "Equity, efficiency and inequality traps: A research agenda," Journal of Economic Inequality, Springer, vol. 5(2), pages 235-256, August.
- Chatterjee, Satyajit & Ravikumar, B., 1999.
"Minimum Consumption Requirements: Theoretical And Quantitative Implications For Growth And Distribution,"
Cambridge University Press, vol. 3(04), pages 482-505, December.
- Chatterjee, S. & Ravikumar, B., 1997. "Minimum Consumption Requirements: Theoretical and Quantitative Implications for Growth and Distribution," Working Papers 97-15, University of Iowa, Department of Economics.
- Satyajit Chatterjee & B. Ravikumar & B. Ravikumar, 1997. "Minimum consumptions requirements: theoretical and quantitative implications for growth and distribution," Working Papers 97-15, Federal Reserve Bank of Philadelphia.
- Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
- Morduch, J., 1995.
"Poverty and Vulnerability,"
477, Harvard - Institute for International Development.
- Azariadis, Costas, 1996.
" The Economics of Poverty Traps: Part One: Complete Markets,"
Journal of Economic Growth,
Springer, vol. 1(4), pages 449-96, December.
- Costas Azariadis, 1996. "The Economics of Poverty Traps Part One: Complete Markets," Working Papers 9606, Centro de Investigacion Economica, ITAM.
- Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
- Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975, March.
- Van de Gaer, Dirk & Schokkaert, Erik & Martinez, Michel, 2001. "Three Meanings of Intergenerational Mobility," Economica, London School of Economics and Political Science, vol. 68(272), pages 519-37, November.
- Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
- Roland Benabou, 1991.
"Workings of a City: Location, Education, and Production,"
NBER Technical Working Papers
0113, National Bureau of Economic Research, Inc.
- Benabou, Roland, 1993. "Workings of a City: Location, Education, and Production," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 619-52, August.
- repec:cup:cbooks:9780521001151 is not listed on IDEAS
- Becker, Gary S & Tomes, Nigel, 1979. "An Equilibrium Theory of the Distribution of Income and Intergenerational Mobility," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1153-89, December.
- Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
- Galor, O. & Tsiddon, D., 1996.
"The Distribution of Human Capital and Economic Growth,"
18-96, Tel Aviv - the Sackler Institute of Economic Studies.
- Galor, Oded & Tsiddon, Daniel, 1997. " The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
- Sen, Amartya, 1983. "Poor, Relatively Speaking," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 153-69, July.
- Foster, James E, 1998. "Absolute versus Relative Poverty," American Economic Review, American Economic Association, vol. 88(2), pages 335-41, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:14511. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.