Traps of Poverty and the Blessings of Wealth

Seminari Micro

Klaus Ritzberger (with L.E.Blume)

Institute for Advanced Studies, Vienna

23-Feb-2015

Seminar 3 – 14:30

If productivity in a society is low, then the only equilibrium involves inefficiently selfish (autarkic) behavior. If productivity is sufficiently high, then there are several equilibria that realize substantial welfare gains through reciprocal behavior. Equilibria for productive societies are distinguished by how they treat the wealth distribution. While conservative societies preserve the distribution, egalitarian behavior further improves welfare by transfers. Yet, both conservative and egalitarian (productive) societies exclude the poorest, even though that involves a welfare loss. So, there are a social and an individual poverty trap. The first is technological, the second behavioral.