Towards a Theory of Behavioral Poverty Traps

Dyotona Dasgupta () and Anuradha Saha
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Dyotona Dasgupta: O.P. Jindal Global University

No 78, Working Papers from Ashoka University, Department of Economics

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.

Pages: 11
Date: 2022-04-18
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Citations: View citations in EconPapers (1)

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