Poverty Traps, Economic Inequality and Delinquent Incentives

This paper explores theoretical linkages between poverty traps, economic inequality
and delinquency in a perfect competition overlapping generations model characterized
by dual legal production sectors and one illegal sector. The model posits
an absence of credit for human capital accumulation, which generates barriers to
skilled educational attainment. We find that the existence of a poverty trap under
conditions of sufficient initial economic inequality and costly indivisible human
capital investment generates persistent delinquency in the long run. We examine
steady state changes caused by shocks that increase skilled wages or reduce
land assets available to the unskilled, finding that these shocks produce outbursts 

of delinquency that die out later if the shocks are temporary but increases permanently
otherwise. We also find that an increase on relative poverty has an
ambiguous effect on long run delinquency rates while an increased focus on law
enforcement policies, intended to increase deterrence and incapacitation, reduces
delinquency in the long run and increases wealth inequality.