Poverty traps, economic inequality and delinquent incentives

This paper explores theoretical linkages between poverty traps, economic inequality and delinquency in a two sector overlapping generations model under perfect competition in which barriers to skilled educational attainment and delinquent incentives interact. We find that the existence of a poverty trap under high economic inequality and costly indivisible human capital investments generate persistent delinquency. We study shocks that increase skilled wages or reduce assets for the unskilled and find that these temporal shocks produce an outburst of delinquency in the short run that die out later on. If the shock is permanent then delinquency increases permanently in the long run. Furthermore, we find that when law enforcement policies increase deterrence and incapacitation permanently delinquency dimineshes en the long run but is accompanied by an increase in wealth inequality. We also find that subsidies for human capital investments can have an ambiguous effect on delinquency in the long run.