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Durham University

Research & business

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Publication details for Dr David Chivers

Chivers, David (2017). Success, survive or escape? aspirations and poverty traps. 06.

Author(s) from Durham

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 a¤ected by the presence
of an aspiration level which will only be satis…ed if their …nal income is
above the poverty line. I show that agents who are su¢ ciently 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 countries.