Success, Survive or Escape? Aspirations and Poverty Traps

David Chivers

No 2017_06, Department of Economics Working Papers from Durham University, Department of Economics

Abstract: I present a model of occupational choice where an agent decides whether to invest in a project that yields risky returns or a project that yields safe returns. An agentís utility is affected by the presence of an aspiration level which will only be satisÖed if their Önal income is above the poverty line. I show that agents who are sufficiently above the poverty line will invest in the risky project and are able to aspire for success. An agent, however, who is just above the poverty line, may be so concerned about falling into poverty that they choose to invest in the safe project. These individuals aspire only to survive. Alternatively, if an agent is su¢ ciently below the poverty line, then they will invest in the risky project even if expected returns are lower than the safe project. These individuals have "nothing left to lose" and therefore aspire to escape. Two forms of poverty traps emerge from the resulting equilibria: one above the poverty line, and one below the poverty line. Finally, I o§er empirical support for the model based on individual level survey data across a large number of ountries.Keywords: Poverty Traps, Entrepreneurship, Aspirations, Loss aversion, Development

JEL-codes: D31 D81 E24 L26 O11 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ent and nep-upt
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Citations: View citations in EconPapers (7)

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