Multiple equilibrium arise in a variety of situations. An iconic example , multiple equilibria are poverty traps: Kiminori Matsuyama has a helpful discussion of poverty traps "http://faculty.wcas.northwestern.edu/-kmatsu/Poverty,20Traps.pdf. , and Mullaianathan and Shafir describe their behavioral poverty trap "https://opinionatorblogs.nytimes.com/2013/09/25/escaping-the-cycle-of-scarcityr . We have discussed others in class, for instance in the third problem set. (attached)
Describe some setting (other than the calorie poverty trap) where there may b ltiple equilibria that you think is relevant to economic development. These types of issues are equally as important for micro and macro settings, so you should feel free to focus a setting that you care about.
A good paper will do the following: a) Describe the theory (in words or math) underlying the poverty trap. b) Pick a specific place and describe the economic environment What in the data suggests that the poverty trap actually might exist? What type of analysis would you need to undertake? You do not need to analyze your own data (although of course it is encouraged), but you should at least find relevant empirical research. Be careful to distinguish between features that are consistent with a poverty trap (e.g. hungry people have less energy), and those that are consistent only with a poverty trap (how much less energy do they hav0).
Sample Solution