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Social Externalities, Overlap and the Poverty Trap

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  • Kim, Young-Chul
  • Loury, Glenn

Abstract

Previous studies find that some social groups are stuck in poverty traps because of network effects. However, these studies do not carefully analyze how these groups overcome low human capital investment activities. Unlike previous studies, the model in this paper includes network externalities in both the human capital investment stage and the subsequent career stages. This implies that not only the current network quality, but also the expectations about future network quality affect the current investment decision. Consequently, the coordinated expectation among the group members can play a crucial role in the determination of the final state. We define "overlap" for some initial skill ranges, whereby the economic performance of a group can be improved simply by increasing expectations of a brighter future. We also define "poverty trap" for some ranges, wherein a disadvantaged group is constrained by its history, and we explore the egalitarian policies to mobilize the group out of the trap.

Suggested Citation

  • Kim, Young-Chul & Loury, Glenn, 2012. "Social Externalities, Overlap and the Poverty Trap," MPRA Paper 54953, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:54953
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    Cited by:

    1. Kim Young-Chul & Ryu Doojin, 2023. "Segregation, Education Cost, and Group Inequality," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 17(1), pages 1-10, January.
    2. Naureen Karachiwalla, 2019. "A Teacher Unlike Me: Social Distance, Learning, and Intergenerational Mobility in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 67(2), pages 225-271.
    3. Michael O. Harhay & Mary C. Smith Fawzi & Sacha Jeanneret & Damascène Ndayisaba & William Kibaalya & Emily A. Harrison & Dylan S. Small, 2017. "An assessment of the Francois-Xavier Bagnoud poverty alleviation program in Rwanda and Uganda," International Journal of Public Health, Springer;Swiss School of Public Health (SSPH+), vol. 62(2), pages 241-252, March.
    4. Kim, Young-Chul & Loury, Glenn C., 2019. "To be, or not to be: Stereotypes, identity choice and group inequality," Journal of Public Economics, Elsevier, vol. 174(C), pages 36-52.
    5. Young-Chul Kim & Glenn C. Loury, 2021. "Birds of a Feather: Life Cycle Social Externalities, Heterogeneous Beliefs, and Development Bias," Working Papers 2104, Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy).
    6. J. Mark Ramseyer, 2021. "Social capital and the problem of opportunistic leadership: the example of Koreans in Japan," European Journal of Law and Economics, Springer, vol. 52(1), pages 1-32, August.

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    More about this item

    Keywords

    Group Inequality; Network Externality; Overlap; Poverty Trap;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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