Working Paper: NBER ID: w12364
Authors: Roland G. Fryer Jr.
Abstract: This paper develops a model of social interactions and endogenous poverty traps. The key idea is captured in a framework in which the likelihood of future social interactions with members of one's group is partly determined by group-specific investments made by individuals. I prove three main results. First, some individuals expected to make group-specific capital investments are worse off because their observed decision is used as a litmus test of group loyalty — creating a tradeoff between human capital and cooperation among the group. Second, there exist equilibria which exhibit bi-polar human capital investment behavior by individuals of similar ability. Third, as social mobility increases this bi-polarization increases. The models predictions are consistent with the bifurcation of distinctively black names in the mid-1960s, the erosion of black neighborhoods in the 1970s, accusations of 'acting white,' and the efficacy of certain programs designed to encourage human capital acquisition.
Keywords: No keywords provided
JEL Codes: J0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| investment behavior (G11) | social mobility (J62) |
| pressure to conform to group norms (C92) | individual economic outcomes (F61) |
| ability (G53) | investment decisions (G11) |
| social mobility (J62) | bipolarization (C46) |