Visiting Associate Professor, Princeton University and Associate Professor of Economics, University of Chicago, Booth School of Business
At this brown bag seminar, Hoyt Bleakley, will be sharing a new paper that uses a historical natural experiment to shed light on fundamental questions about poverty traps. The state of Georgia allocated land by random lottery in 1832, participation was nearly universal among eligible Georgians, regardless of their income or wealth. Bleakley and his co-author use the 1850 census to assess the long term impacts of this random allocation on income distribution.
They find that nearly two decades after the land allocation, those who won the lottery were on average richer than those who did not. However, this change was driven mostly by a net shift from the middle to the upper end of the income distribution; the lower end of the income distribution was largely unaffected. This finding contrasts what we would expect from the “mechanical” short run effect of the wealth shock, which should just compress the income distribution. If the poorest are poor because of the credit constraints associated with the typical understanding of a wealth-based “poverty trap” then winning the lottery should have had the greatest effect on them. The results suggest that wealth is determined by differences among individuals on a variety of dimensions such as risk-taking, resource management, and delay of gratification and that it may take more than wealth to move the bottom end of the income distribution out of poverty.