Chronic poverty is a condition that requires an understanding of the processes that make, and keep, people poor. The economic analysis of chronic poverty must take into account the interaction between external circumstances (initial wealth social status, health) and intrinsic psychological factors (aspirations, self-confidence, beliefs).
Traditional economic theory assumes that both extrinsic circumstances and psychological factors like aspirations are taken as given when individuals make choices. However, existing work on poverty traps and social exclusion indicates that the extrinsic circumstances of individuals impact on both intrinsic motivation and choices. When should policy address the extrinsic circumstances of individuals and when should policy directly address psychological factors? What is the appropriate policy mix for alleviating chronic poverty?
The basic objective will be to formulate and analyze a formal model of social interaction where the psychological factors is linked to their extrinsic circumstances across individuals. The anticipated results will answer questions such as: why structural poverty reduction must consider empowering of individuals, why some paternalistic policies have in general failed, why role models matter, why social networks matter, or why "small" institutional barriers that would appear insignificant in a cost benefit analysis must be taken into consideration to break a poverty trap.
University of Warwick
Sayantan Ghosal