Nicolás Salamanca - Quantifying Aspirational Poverty Traps

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Title: Quantifying Aspirational Poverty Traps

Abstract: Recent theoretical findings from behavioral economics argue that, aside from classical poverty traps, there exist aspirational poverty traps; low--effort equilibria perpetuated not by people's lack of resources but by their imperfect aspiration--formation mechanisms. These findings have important implications for the design of anti-poverty programs, since they suggest that some people can be pulled out of poverty by shifting their aspirations - an alternative and arguably cheaper approach than traditional monetary transfers. There is, however, little empirical evidence of the existence and economic relevance of these aspirational poverty traps. In this paper, we derive testable predictions which allow us to quantify the potential size of aspirational poverty traps using existing data from large-scale anti-poverty program evaluations. Using data from the National Longitudinal Survey of Youth 1979 (NLSY79), we aim to assess the size of the different populations which can be subject to aspirational poverty traps. We also aim to characterize these populations so it is easier to target them with aspiration-shifting mechanisms. Finally, we discuss how our results can be extended to inform the design of potentially more cost-effective welfare policies.

Presenter: Dr Nicolás Salamanca, Melbourne Institute, The University of Melbourne

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