Discussion Paper
No. 2012-28 | June 11, 2012
Gordon Anderson
Boats and Tides and "Trickle Down" Theories: What Economists Presume about Wellbeing When They Employ Stochastic Process Theory in Modeling Behavior

Abstract

Aphorisms that "Rising tides raise all boats" or that material advances of the rich eventually "Trickle Down" to the poor are really maxims regarding the nature of stochastic processes that underlay the income/wellbeing paths of groups of individuals. This paper looks at the implications for the empirical analysis of wellbeing of conventional assumptions regarding such processes which are employed by both micro and macro economists in modeling economic behavior. The implications of attributing different processes to different groups in society following the club convergence literature are also discussed. Various forms of poverty, inequality, polarization and income mobility structures are considered and much of the conventional wisdom afforded us by such aphorisms is questioned. To exemplify these ideas the results are applied to the distribution of GDP per capita in the continent of Africa.

Data Set

JEL Classification:

C22, I32, D91, D63, O47

Links

Cite As

[Please cite the corresponding journal article] Gordon Anderson (2012). Boats and Tides and "Trickle Down" Theories: What Economists Presume about Wellbeing When They Employ Stochastic Process Theory in Modeling Behavior. Economics Discussion Papers, No 2012-28, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-28


Comments and Questions



G Y - Important article
June 12, 2012 - 05:37
An interesting article dealing with an important problem of wellbeing and inequality.

Anonymous - Understanding Poverty
June 12, 2012 - 10:40
The somewhat indefinate conclusions of this paper imply that it is unsatisfactory. However the treatment and analyses are well presented. It is the failure to identify the basic cause of poverty and to analyse that aspect, rather than to more simply examine the statistics of past events and changes, that is the real difficulty. The cause of poverty is greed by those who regulate access to natural resources, particularly land, but the subject of land ownership is omitted.

Peter Lambert - Gordon Anderson's paper
June 25, 2012 - 18:48
This is a well-articulated and interesting exploration of what would be implied for poverty analysis if one took on board stochastic theories for the evolution of income distribution. In particular, if different stochastic processes are at work in economically different groups in society, as is suggested, the poor may be identified “by the extent to which their income processes are noticeably different from the income processes of other groups in society rather than because their income is less than some pre-specified boundary” (page 16). Inter alia, this would lead to a new perspective on inter-relations between growth, inequality and poverty. I value the paper.

Gordon Anderson - Reply
June 26, 2012 - 16:07
Many thanks to Gregory and Peter. A major part of my current research agenda, which is to understand the progress of wellbeing without resort to arbitrarily defined frontiers or presumed circumstances, was prompted by the results in this paper. Hopefully this agenda will provide a new perspective on the inter-relations between growth, inequality and poverty and a better understanding of the causes and consequences thereof. In turn I hope this will also satisfy "Anonymous", it was not the intent of the paper to establish sources and causes of poverty rather it was to point out that, when economists construct models (often to study growth, inequality or the plight of the poor) they are already making very strong assumptions about the nature of the object of their study.

Anonymous - A new way of looking at income distribution
July 04, 2012 - 13:11
In my view, the most interesting contribution of the paper is that it proposes a new way of looking at income distribution measurement issues. This is always refreshing. In this case, the idea is based on the analysis of the underlying stochastic processes. The idea is not completely new, as the interesting literature review highlights, but the author provides a more global perspective. However, I confess that I am not completely convinced with this approach, because I do not get on essential point, what are their economic foundations? For example, the author proposes to base poverty analysis on the idea that different groups in the population follow different stochastic processes. But what are the economic reasons for this? Is because their differences in human capital, in luck, in financial endowments, …? What determines which is your process? And are you attached to one specific process for your whole life, or do people change the process in their lifetime? Maybe I missed these points in the paper.

Gordon Anderson - Reply to comment
July 06, 2012 - 15:43
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August 03, 2012 - 14:48
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August 17, 2012 - 08:42
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