IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Poor’s behaviour and inequality traps: the role of human capital

  • Lombardo, Vincenzo
Registered author(s):

    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.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://mpra.ub.uni-muenchen.de/14511/1/MPRA_paper_14511.pdf
    File Function: original version
    Download Restriction: no

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14511.

    as
    in new window

    Length:
    Date of creation: Nov 2008
    Date of revision:
    Handle: RePEc:pra:mprapa:14511
    Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
    Phone: +49-(0)89-2180-2219
    Fax: +49-(0)89-2180-3900
    Web page: http://mpra.ub.uni-muenchen.de

    More information through EDIRC

    References listed on IDEAS
    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.:

    as in new window
    1. Galor, Oded & Tsiddon, Daniel, 1997. "Technological Progress, Mobility, and Economic Growth," American Economic Review, American Economic Association, vol. 87(3), pages 363-82, June.
    2. 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.
    3. Morduch, Jonathan, 1994. "Poverty and Vulnerability," American Economic Review, American Economic Association, vol. 84(2), pages 221-25, May.
    4. Roland Benabou, 1991. "Workings of a City: Location, Education, and Production," NBER Technical Working Papers 0113, National Bureau of Economic Research, Inc.
    5. 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.
    6. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    7. repec:cup:cbooks:9780521001151 is not listed on IDEAS
    8. Sen, Amartya, 1983. "Poor, Relatively Speaking," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 153-69, July.
    9. Banerjee, Abhijit Vinayak & Benabou, Roland & Mookherjee, Dilip (ed.), 2006. "Understanding Poverty," OUP Catalogue, Oxford University Press, number 9780195305203, March.
    10. Galor, O. & Tsiddon, D., 1996. "The Distribution of Human Capital and Economic Growth," Papers 18-96, Tel Aviv - the Sackler Institute of Economic Studies.
    11. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
    12. 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.
    13. 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.
    14. 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.
    15. 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.
    16. Steven N. Durlauf, 1992. "A Theory of Persistent Income Inequality," NBER Working Papers 4056, National Bureau of Economic Research, Inc.
    17. 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.
    18. Azariadis, Costas & Drazen, Allan, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 501-26, May.
    19. Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975, March.
    20. 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.
    21. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
    22. Costas Azariadis, 1996. "The Economics of Poverty Traps Part One: Complete Markets," Working Papers 9606, Centro de Investigacion Economica, ITAM.
    23. 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.
    24. 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.
    25. Ceroni, Carlotta Berti, 2001. "Poverty Traps and Human Capital Accumulation," Economica, London School of Economics and Political Science, vol. 68(270), pages 203-19, May.
    26. 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.
    27. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
    28. Foster, James E, 1998. "Absolute versus Relative Poverty," American Economic Review, American Economic Association, vol. 88(2), pages 335-41, May.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.