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Towards a Theory of Behavioral Poverty Traps

Author

Listed:
  • Dyotona Dasgupta

    (O.P. Jindal Global University)

  • Anuradha Saha

    (Ashoka University)

Abstract

In a dynamic setting, we build a theoretical model to capture the macroeconomic implications of parental biases on poverty traps and income inequality. Less privileged parents have biased perceptions about ‘self-efficacy’. Perceived self-efficacy is shaped by socio-economic backgrounds. We find that biases increase the extent of poverty trap. Without any biases, there exists a poverty trap only when the parental warm glow is low. With biases, there emerges a poverty trap even for moderate warm glow. For high parental warm glow, there may exist a poverty trap. Income inequality in presence of biased parents is always (weakly) higher.

Suggested Citation

  • Dyotona Dasgupta & Anuradha Saha, 2022. "Towards a Theory of Behavioral Poverty Traps," Working Papers 78, Ashoka University, Department of Economics.
    • Handle: RePEc:ash:wpaper:78
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    File URL: https://dp.ashoka.edu.in/ash/wpaper/paper78_0.pdf
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    References listed on IDEAS

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    1. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
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    Cited by:

    1. Dasgupta, Dyotona & Saha, Anuradha, 2022. "Perceptions, biases, and inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 198-210.

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