Emergent poverty traps and inequality at multiple levels impedes social mobility

Abstract: Eradicating extreme poverty and inequality are the key leverage points to achieve the seventeen Sustainable Development goals. Yet, the reduction in extreme poverty and inequality are vulnerable to shocks such as the pandemic and climate change. We find that that these vulnerabilities emerge from the interaction between individual and institutional mechanisms. Individual characteristics like risk aversion, attention, and saving propensity can lead to sub-optimal diversification and low capital accumulation. These individual drivers are reinforced by institutional mechanisms such as lack of financial inclusion, access to technology, and economic segregation, leading to persistent inequality and poverty traps. Our experiments demonstrate that addressing above factors yields 'double dividend' - reducing poverty and inequality within-and-between communities and create positive feedback that can withstand shocks.