Poverty Traps

Displaying 23 Items

Aspirations and Inequality

(with Garance Genicot) Econometrica 85, 485-519, 2017. Online Appendix2009 version.

Summary. This paper develops a theory of socially determined aspirations, and the interaction of those aspirations with growth and inequality. The interaction is bidirectional: economy-wide outcomes determine individual aspirations, which in turn determine investment incentives and social outcomes. Thus aspirations, income, and the distribution of income evolve jointly.

Poverty and Self-Control

(with Doug Bernheim and Sevin Yeltekin), Econometrica 83 (5), 1877-1911, 2015. Online Appendix. A link to the 1999 version, which only had numerical results.

Summary. Poverty can perpetuate itself by undermining the capacity for self-control.  Our main result demonstrates that low initial assets can limit self-control, trapping people in poverty, while those with high initial assets can accumulate indefinitely.


A Theory of Occupational Choice with Endogenous Fertility

(with Dilip Mookherjee and Silvia Prina), American Economic Journal: Microeconomics  4, 1–34, 2012.

Summary. Theories based on partial equilibrium reasoning alone cannot explain the widespread negative cross-sectional correlation between parental wages and fertility, without restrictive assumptions on preferences and childcare costs. We argue that incorporating a dynamic general equilibrium analysis of returns to human capital can help explain observed empirical patterns.

Aspirations, Segregation and Occupational Choice

(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association 8, 139–168, 2010.

Summary. This paper examines steady states of an overlapping generations economy with a given distribution of household locations over a one-dimensional interval. The paper studies steady state configurations of skill acquisition, both with and without segregation, and studies the macroeconomic and welfare effects of segregation on aggregate economic outcomes.

Social Interactions And Segregation In Skill Accumulation

(with Dilip Mookherjee and Stefan Napel), Journal of the European Economic Association 8, 1–13, 2010.

Summary. This paper studies human capital investment in a spatial setting with interpersonal complementarities. A mixture of local and global social interactions affect the cost of acquiring education, and the return to human capital is determined endogenously in the market.

Poverty and Disequalization

(with Dilip Mookherjee) Journal of Globalization and Development 1, Article 3, 2010.

Summary. We study the intergenerational transmission of inequality using a model in which parents can make both financial and occupational bequests to their children. An equal steady state with high per capita skill can co-exist with unequal steady states with low per capita skill. We investigate dynamics starting from arbitrary initial conditions.

Inequality and Markets: Some Implications of Occupational Diversity

(with Dilip Mookherjee), American Economic Journal Microeconomic2 38–76, 2010.

SummaryThis paper studies income distribution in an economy with borrowing constraints. If the span of occupational investments is large, long-run wealth distributions display persistent inequality. With a “rich” set of occupations, so that training costs form an interval, the distribution is unique and the average return to education must rise with educational investment. 

A Dynamic Incentive-Based Argument for Conditional Transfers

(with Dilip Mookherjee), Economic Record 84, S2–S16, 2008.

Summary. We compare the long-run (steady state) effects of replacing unconditional transfers to the poor by transfers conditional on education of children. Conditional transfers (funded by taxes on earnings of the skilled) are shown to generate higher long run output per capita and higher (utilitarian and Rawlsian) welfare.

On the Dynamics of Inequality

Economic Theory 29, 291–306, 2006.

Summary. The dynamics of inequality are studied in a model of human capital accumulation with credit constraints. This model admits a multiplicity of steady state skill ratios that exhibit varying degrees of inequality across households. The main result studies nonstationary equilibrium paths, and shows that an equilibrium sequence of skill ratios must converge monotonically to the smallest steady state that exceeds the initial ratio for that sequence. This paper, in honor of Mukul Majumdar, publishes notes from 1990, which contain a different proof of the main result.

Aspirations, Poverty and Economic Change

in Abhijit Banerjee, Roland Benabou and Dilip Mookherjee, What Have We Learned About Poverty?, Oxford University Press, 2006.

Summary. Introduces the idea of aspirations as a socially determined reference point. The paper argues that reachable aspirations serve to inspire, while still higher aspirations could lead to frustration.

Persistent Inequality

(with Dilip Mookherjee), Review of Economic Studies 70, 369-393, 2003.

SummaryWhen human capital accumulation generates pecuniary externalities across professions, and capital markets are imperfect, persistent inequality in utility and consumption is inevitable in any steady state. 

Contractual Structure and Wealth Accumulation

(with Dilip Mookherjee), American Economic Review 92, 818–849, 2002. Online Appendix.

Summary. Can historical wealth distributions affect long-run output and inequality despite “rational” saving, convex technology and no externalities? We consider a model of equilibrium short-period financial contracts, where poor agents face credit constraints owing to moral hazard and limited liability. If agents have no bargaining power, poor agents have no incentive to save: poverty traps emerge and agents are polarized into two classes, with no interclass mobility. If instead agents have all the bargaining power, strong saving incentives are generated: the wealth of poor and rich agents alike drift upward indefinitely and “history” does not matter eventually.

Is Equality Stable?

(with Dilip Mookherjee), American Economic Review (Papers and Proceedings) 92, 253–259, 2002.

Summary. We explore the view, further developed in our other work, that inequality is an inevitable consequence of the market mechanism.

History and Coordination Failure

(with Alicia Adserà), Journal of Economic Growth 3, 267–276, 1998.

Summary. An extensive literature discusses the existence of a virtuous circle of expectations that might lead communities to Pareto-superior states among multiple potential equilibria. It is generally accepted that such multiplicity stems fundamentally from the presence of positive agglomeration externalities. We examine a two-sector model in this class, and look for intertemporal perfect foresight equilibria. It turns out that under some plausible conditions, positive externalities must coexist with external diseconomies elsewhere in the model, for there to exist equilibria that break free of historical initial conditions. Our main distinguishing assumption is that the positive agglomeration externalities appear with a time lag(that can be made vanishingly small). Then, in the absence of external diseconomies elsewhere, the long-run behaviour of the economy resembles that predicted by myopic adjustment. This finding is independent of the degree of forward-looking behavior exhibited by the agents.

Dynamic Equilibria With Unemployment Due to Undernourishment

(with Peter Streufert), Economic Theory 3, 61-85, 1993.

Summary. We describe steady states of a dynamic model with unemployment due to undernourishment. For many aggregate land stocks, there is a continuum of steady states, We suggest that certain land reforms can reduce unemployment.

Why Does Asset Inequality Affect Unemployment? A Study of the Demand Composition Problem

(with Jean-Marie Baland), Journal of Development Economics 35, 69-92, 1991.

Summary. This paper is devoted to a general equilibrium analysis of the relationship between the inequality in asset holdings and the aggregate levels of output and employment in a developing economy. Since luxuries and basic goods compete for the use of the same scarce resources, unemployment is conceived as a mechanism whereby the market demand for basic goods can be limited to a sufficiently low level so that the high demand for luxuries can be met. The ambiguous effects of capital accumulation on employment are also examined.

Inequality as a Determinant of Malnutrition and Unemployment, II. Policy

(with Partha Dasgupta), Economic Journal 97, 177-188, 1987.

Summary. This is the second part of a two-part article which develops a theory of involuntary unemployment and the incidence of undernourishment, relates these in turn to the production and distribution of income, and ultimately to the distribution of productive assets. In this part, we study policy options such as land reform.

Inequality as a Determinant of Malnutrition and Unemployment, I. Theory

(with Partha Dasgupta), Economic Journal 96, 1011-1034, 1986.

Summary. This is the first part of a two-part article which develops a theory of involuntary unemployment and the incidence of undernourishment, relates these in turn to the production and distribution of income, and ultimately to the distribution of productive assets. In this part, we study the general equilibrium of such a framework and describe its properties.

An Economic Theory of Malnutrition

(with Partha Dasgupta), in I.S. Gulati and M. Shroff (eds.), Economic Theory and Underdevelopment: Essays in Honour of I.G. Patel, 1986.

Summary. An initial, sketchy version of the Dasgupta-Ray papers on involntary unemployment and undernutrition.

Intertemporal Borrowing to Sustain Exogenous Consumption Standards under Uncertainty

Journal of Economic Theory 33, 72-87, 1984.

Summary. Consider an agent who is attempting to maintain a given consumption level over time. in the face of a stochastic technology. He is permitted to borrow and lend at given rates of interest. The main results are: (i) if the borrowing rate of interest exceeds the lending rate. the expected net indebtedness of the agent must grow unboundedly large, unless the consumption target is attainable with at most one loan, and (ii) the probabilities of the two events: becoming increasingly indebted, and accumulating unbounded wealth, sum to unity.