Location: 368A Heady hall
Description: Steven Durlauf
"Some Microfoundations for the Great Gatsby Curve"
Abstract: The Great Gatsby Curve suggests that that cross sectional inequality and intergeneration mobility are negatively associated. For example, Miles Corak claims that for a set of advanced industrialized economies, there is a positive correlation between cross-sectional inequality and the persistence of status between parents and off-spring, Durlauf focuses on two mechanisms whose interactions produce an intertemporal Gatsby curve: social influences on individual outcomes and market frictions.
The conceptual model is one of a 2-period overlapping generations. Individuals are born in period one and receive human capital. In period 2 they become members of a neighborhood, produce 1 child, and consume. At each point in time, there is for every cross-section income distribution a core configuration of families across neighborhoods. Equilibrium neighborhoods are stratified by income. A family is affected by others through a trade-off between the benefit from a larger population of neighbors due to diminishing returns to human capital investment and the benefits from affluent neighbors due to greater tax revenues and social interactions. These create tradeoffs for the preferred neighborhoods in the most affluent family. Hence, they affect equilibrium neighborhood composition.
Contact Person: Wallace Huffman