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Poverty traps in Markov models of the evolution of wealth
[working paper]
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Wissenschaftszentrum Berlin für Sozialforschung gGmbH
Abstract Poverty trap models are dynamical systems with more than one attractor. Similar dynamical systems arise in optimal growth and macroeconomic models. These systems are often studied empirically by ad hoc methods relying on intuition from deterministic systems, such as looking for multiple peaks in the... view more
Poverty trap models are dynamical systems with more than one attractor. Similar dynamical systems arise in optimal growth and macroeconomic models. These systems are often studied empirically by ad hoc methods relying on intuition from deterministic systems, such as looking for multiple peaks in the stationary distribution of states. We develop Markov wealth processes in which parents' investments in children stochastically determine children's wealth, and consequently their own investment choices. We show that, relative to a zero-shock process, some of the multiple attractors are less fragile than are others, and that their presence dominates the stationary behavior of the wealth distribution. Typically, mass accumulates around attractors. An only slightly stochastically perturbed deterministic system will have an invariant distribution which puts close to probability 1 on a single steady state rather than having significant mass distributed among several attractors. We also examine how policy effects the shape of the invariant distribution.... view less
Classification
Basic Research, General Concepts and History of Economics
Free Keywords
poverty traps; wealth distribution; wealth mobility
Document language
English
Publication Year
2020
City
Berlin
Page/Pages
24 p.
Series
Discussion Papers / Wissenschaftszentrum Berlin für Sozialforschung, Forschungsschwerpunkt Markt und Entscheidung, Abteilung Ökonomik des Wandels, SP II 2020-303
Handle
https://hdl.handle.net/10419/215416
Status
Published Version; reviewed
Licence
Deposit Licence - No Redistribution, No Modifications