Research & Work in Progress

Work in Progress:

On the Dynamics of Coordinated Hierarchies: Economic Growth versus Poverty Traps (with Gubar, A., Gerschuk, T., and Owen, L. ) -- R&R Journal of Mathematical Economics

AbstractThis paper develops a hierarchical evolutionary game with two populations: ``Parents'' (leaders, e.g., governments, market-making firms) who set the economic environment, and ``Children'' (followers, e.g., citizens, workers) whose collective actions determine the aggregate macroeconomic outcome. Agents in both populations choose between a High-profile ($H$) strategy (e.g., investment, R\&D, education) and a Low-profile ($L$) strategy (e.g., subsistence, informal activity). Using an ``imitate-the-better'' dynamic, we analyze the system's stability. Our central finding is that this hierarchical interaction creates strong hysteresis. That is, transcritical bifurcations show that small, continuous changes in the leadership environment can trigger a sudden, non-linear collapse into the poverty trap. Our contribution is to embed a hierarchical leader–follower structure (state vs citizens) into an evolutionary poverty-trap framework and to use governance indicators as a bifurcation parameter, rather than to introduce evolutionary poverty traps per se. Our model provides a formal micro-foundation for coordination failures and offers a theoretical caution against purely incremental economic policy reforms.

On Poverty Traps, Rational Bubbles, and Wealth Inequality (with Accinelli E., and L. Policardo) -- UR European Economic Review

AbstractThis paper develops a dynamic general equilibrium (DGE) model with heterogeneous agents to connect three macroeconomic phenomena: persistent poverty traps, sluggish real growth, and rising wealth inequality. The model achieves this by allowing agents, who differ in patience and face a subsistence consumption constraint, to choose between portfolios consisting of productive capital and a fixed-supply, unproductive asset susceptible to rational speculative bubbles. The analysis reveals that these bubbles, while rational, generate a negative wealth effect that crowds out productive investment, leading to lower real wages and output, which in turn exacerbates wealth inequality by pushing constrained agents closer to the poverty trap. Simulations calibrated to different income groups suggest that middle-income economies are particularly vulnerable to a bubble-induced collapse into the low-income equilibrium. Calibration and simulation illustrate the path dependence and the potentially severe impact of bubbles, especially in parameterizations mimicking economies according to income groups.Keywords: Poverty Traps, Wealth Inequality, Speculative Bubbles, Endogenous Savings, Portfolio Choice, Heterogeneous Agents, General Equilibrium, Subsistence Consumption.

The Gilded Cage: The effects of Social Segregation and Wealth Inequality on Capital Accumulation (with Policardo, L.) -- UR Journal of Economic Growth

AbstractWe propose a new theory to explain the ambiguous empirical relationship between inequality and economic growth, arguing that its sign is determined by the interaction between wealth concentration and social structure. We develop a general equilibrium model where households make a portfolio choice between productive capital and non-productive "luxury" assets, which confer social status. In a significant departure from standard models, we posit that the desire for status-signaling is not constant. For the wealthy, this desire is intensified by social integration, where they feel compelled to distinguish themselves from other groups. High social segregation, conversely, creates a ``gilded cage'' where the status of the elite is secure, reducing the need for conspicuous consumption. We formalize this mechanism by making the preference for status endogenous to the degree of segregation. Calibrating the model to the United States (high inequality, high segregation) and France (high inequality, low segregation), our simulations generate a provocative result: the high-segregation economy accumulates a larger stock of productive capital and achieves higher long-run output. This occurs because segregation insulates the wealthy—who control the majority of investment capital—from the pressure to engage in wasteful status competition. Consequently, we find that wealth redistribution in a highly segregated society can be detrimental to growth by transferring capital from the highly productive-investing elite to other groups. Our paper provides a novel, theoretically coherent mechanism where social stratification, paradoxically, can be growth-enhancing.Keywords: Economic Growth, Wealth Inequality, Conspicuous Consumption, Segregation, Status Economics.

Optimal Timing and Enforcement to Annihilate Firms' Pollution (with Accinelli E., and S. Ille) -- UR Energy Economics

AbstractIn contrast to conventional approaches that perceive environmental degradation as a passive externality, we construct a model that intrinsically links pollution to a firm’s investment decisions. We aim to analyze the behavior of polluting firms under regulatory policies, i.e., exploring the timing of pollution reduction and the effectiveness of audits in curbing environmental damage. Given that pollution persists until environmental damage becomes a binding constraint on further productive capacity, we incorporate the natural, self-limiting mechanism in our model that has received limited attention in the literature. We study the role of the discount factor, which determines the trade-off between short-term profit maximization and long-term sustainability. Consequently, varying degrees of patience and myopia influence a firm’s pollution trajectory. By simulating interactions between auditors and firms, we transcend conventional Pigouvian prescriptions and provide a more comprehensive account of the implementation constraints. Based on our proposed dynamic model, we develop a dynamic game to show the conditions under which random inspections by auditors prevent firms from polluting, even when the former are corrupt and susceptible to bribery. This allows us to design transparent and effective compliance mechanisms, even in the face of corruption risk. Our findings offer practical insights for regulatory design in imperfect institutional settings.Keywords: Corruption; Discount factor; Dynamic constraints; Enforcement policy; Environmental regulation; Strategic auditing.

Economic Growth, Poverty Traps, and Wealth Concentration: Riddles and Waves Driven by Unproductive Assets (with Grassetti, F.)

AbstractThis research paper studies a non-linear dynamic macroeconomic model to analyze the in- teractions between economic growth and the concentration of wealth driven by productive and unproductive capital or bubbly assets. The paper considers both a deterministic and a stochastic version of the model to analyze the economy’s evolution, i.e., growth, poverty traps, and wealth concentration. For the deterministic case of the model, we show that poverty traps exist as a stable or unstable (saddle) steady state, depending on whether the returns to unproductive assets are positive or negative. A high-level equilibrium exists when the returns on unproductive assets are negative, but fluctuations (i.e., cycles or oscillations) may occur. For the stochastic and bubbly case, we calibrate the model, and we may conclude that the implementation of economic policies that improve the investments of capitalists in productive capital would remove the economies from the threat of a poverty trap and pos- sible fluctuations, in addition to the fact that wealth inequality would decline in the long run..Keywords: Economic Growth; Non-linear Growth Models; Rentier premium; Unproductive assets; Wealth inequality.

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