Transitioning out of Poverty
We study the mechanism of inequality due to educational lock-in effects. Recent research on inequality such as Brock and Durlauf (2000a, b) and Durlauf (1999a, b, 2000) has emphasized the fact that the composition and behavior of groups to which a person belongs play an important role for socioeconomic outcomes. Heterogeneity in environment across groups surrounding individuals can lead to take-offs of individuals or can lead to substantial immobility, the so-called social lock-in effects, concerning learning and building up skills. Those effects gradually accumulate and cause larger differences in income and status of individuals across groups. In this paper, we explore a mechanism that can lead to educational and social lock-ins that can give rise to persistent inequality. The presence of such a mechanism has an important implication for competition in the market and thus on aggregate inequality. If these mechanisms are present the model becomes highly nonlinear and may give rise to thresholds and multiple attractors. The lower attractor(s) are regarded as poverty traps and any path to the upper attractor(s) entails a take-off.
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