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Abstract
In recent decades the Indian subcontinent has displayed remarkable invariance in the incidence of working poverty despite strong economic performance. It is widely held that education can rescue households from various types of poverty traps created by information problems and incorrect expectations. Yet we know very little about the motivation of the working poor in acquiring education. From a field study conducted in Bangladesh, we gain invaluable insights for the first time, to our best understanding, into the factors that shape the decision of a poor household to care about and respond to educational decisions of others in one's community. Based on the ‘choice-theoretic framework of rational emulation and deviance’, we empirically explain why some households choose to copy others, while some choose deviance even though social deviance in acquiring education can throw subjects into abject poverty.
Notes
1. In the Indian context, Bardhan (Citation2010) admits that economic reforms have made the corporate sector more vibrant and competitive, yet the bulk of the Indian economy remains rather disconnected from the corporate sector. As an example, nearly 95% of the Indian labour force is absorbed by the non-corporate sector. The much-celebrated info-tech sector accounts for about 1% of the labour force. Financial and business services and telecommunications, where the economic reforms are mostly visible, account for less than 25% of the output of the Indian services sector.
2. There is a growing criticism that national and state governments have failed to provide for social service delivery, education, health, child nutrition, drinking water, irrigation water, etc. for the poor especially in the Indian society.
3. More than 90% of the workforce of the region belongs to the informal labour market with virtual absence of labour unions and accompanying safety nets. It is important to stress that the continuing prosperity in the regional economy has created significant inequality, both vertical and horizontal – the informal sector being on the wrong side of the economic and social divide in the region.
4. We provide the rationale for and the weaknesses of the cubic utility function in Appendix 1.
5. The data-set was collected from a survey undertaken in 2008–2009. The Human Research Ethics Committee (HREC) registration and the National Ethics Application Form (NEAF) protocol for the field survey are respectively H6605 and 6269. The principal investigator for the survey is Partha Gangopadhyay and the associate investigator is Mustafa A. Rahman.
6. The difference is mainly in the link function. In logit: Pr(Y = 1|X) = [1 + e−X′β]−1, in probit we use the CDF: Pr(Y = 1|X) = Φ(X′β). In other words, the likelihood function in probit (Φ) is a cumulative normal probability density function (PDF).
7. Dreze Continues, ‘We were shocked to find that even in prosperous villages some households lived in conditions of extreme poverty and hunger. A casual visitor is unlikely to notice them, as destitute households keep a low profile and are often socially invisible. But if you look for them, you will find them, quietly struggling to earn their next meal or patiently starving in a dark mud hut. Destitute households are beyond the pale of most development programmes and welfare schemes’.
8. The poor are those households who are unable to meet their minimum subsistence needs despite spending 60% or more of their incomes on food.
9. Empirical studies of peer effects in the school context have three known limitations: proper definition of a peer group, omitted variable bias due to self-selection into a group and common teacher effects that affect all members of a group (correlated effects), and the reflection problem (Manski Citation1993).
10. Note that reputational herding is feasible if better agents have more correlated signals on the state of the world. Without this correlation followers would have little incentives to copy predecessors’ behaviour. However, Ottaviani and Sorensen (2000) have shown that this correlation is not necessary except in the degenerate case.
11. Two phenomena are of particular interests to the profession, namely informational cascades and herd behaviour that can arise in several circumstances. Despite the fact that herd behaviour and informational cascades are interchangeably used in the existing literature, there is a significant difference in their precise imports. Informational cascades describe an infinite sequence of individual decisions in which individuals ignore their private information while making a decision. In herding an infinite sequence of individuals make an identical decision (see Smith and Sorensen Citation2000). Herding thus implies that individuals choose the same action in a given circumstance, but they may have acted differently from one another if the realisation of their private signals had been different. In this paper we focus solely upon herd behaviour, or herding.
Additional information
Notes on contributors
Partha Gangopadhyay
Dr Partha Gangopadhyay is an associate professor of economics at University of Western Sydney. He has authored 6 books and 70 refereed articles and book chapters in analytical economics.
Mustafa A. Rahman
Dr Biswa Nath Bhattacharya held senior appointments with the Asian Development Bank (ADB) and Asian Development Bank Institute (ADBI) being a former advisor to the head of Regional Economic Integration, ADB, special advisor to the Dean of ADBI and currently distinguished fellow of Observation Research Foundation, New Delhi. He has authored 20 books and over 120 refereed papers on various aspects of economics.
Biswa Nath Bhattacharya
Dr Mustafa A. Rahman is an associate professor at the North-South University in Dhaka, Bangladesh. He has previously worked for ILO and other international agencies on working poverty. In recent years, after completing a PhD in economics from University of Western Sydney in 2010, he has published his research on working poverty in leading journals of development and politics.