Success, Survive or Escape? Aspirations and Poverty Traps

Chivers, D.

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 agent's utility is affected by the presence of an aspiration level which will only be satisfied if their final 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 sufficiently 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 offer empirical support for the model based on individual level survey data across a large number of countries.

Citation

Chivers, D. (2017). Success, Survive or Escape? Aspirations and Poverty Traps. Journal of Economic Behavior and Organization, 143, 116-132. https://doi.org/10.1016/j.jebo.2017.09.018

• Journal Article Type: Article
• Acceptance Date: Sep 18, 2017
• Online Publication Date: Sep 22, 2017
• Publication Date: Nov 1, 2017
• Deposit Date: Sep 19, 2017
• Publicly Available Date: Mar 22, 2019
• Journal: Journal of Economic Behavior and Organization
• Print ISSN: 0167-2681
• Electronic ISSN: 2328-7616
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 143
• Pages: 116-132
• DOI: https://doi.org/10.1016/j.jebo.2017.09.018
• Public URL: https://durham-repository.worktribe.com/output/1344745