Religion as Imaginary Risk Buffer:Multiple Equilibria in Life Insurance

I want you to write a paper about multiple equilibria.
We see differences in behavior in outcomes and behavior all over the world. Some are economic- some people are wealthy and others are poor, people and countries are in different industries, have access to different transportation methods and networks, have different education/health/political systems, etc. Others are not economic – some people drive on the left and others on the right, countries have different types of power outlets, some people say “tu” and others say “vos” when talking to friends (while others don’t even talk in Spanish!), some people like spicy food and others don’t. We don’t always have to “see” the path not taken to think about it: for instance, consider about the qwerty default for keyboards, or that north is “up” in maps.
These differences in behavior could be due to fundamentals (for instance: spicy food is more useful in hot places), luck (spicy peppers happen to grow in Peru but not Argentina), or they could be due to self-reinforcing behavior (if kids aren’t brought up earing spicy food, they are unlikely to eat them as adults). Often the fundamental reason dies out, but the behavior remains, this is called hysteresis.[1]
In development, an iconic example of multiple equilibria are poverty traps: Kiminori Matsuyama has a helpful discussion of poverty traps here(https://faculty(dot)wcas(dot)northwestern(dot)edu/~kmatsu/Poverty%20Traps.pdf), and Mullaianathan and Shafir describe their behavioral poverty trap here (https://www(dot)npr(dot)org/2018/04/02/598119170/the-scarcity-trap-why-we-keep-digging-when-were-stuck-in-a-hole). We have discussed other settings with multiple equilibria in class, for instance the Magrebi and Genoese solutions to the fundamental problem of exchange, joining a coup from the third problem set, and the “big push” (some of this material will be covered after this prompt is posted).
For your final essay, I would like you to write about multiple equilibria. In particular, I would like you to discuss some feature of the world that you think is caused by multiple equilibria (and not by fundamental differences in exogenous characteristics.). 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.[2] You do get credit for coming up with an interesting & unique idea. I would prefer that you not write about years of schooling, healthiness, or corruption, although if you have a topic that you are specifically excited about you should run it by me.
You should start your paper by describing exactly what the phenomenon you are interested in is. Even if you think your theory is more general, you should pick a specific context to discuss. You can describe your theory in math (which is what we did for the theories in class), or just words, but be sure to be clear exactly what the mechanism is that preserves different equilibria.
We also discussed convergence in class. We have seen that, among other things, cross country incomes, human capital, capital per worker, and manufacturing TFP have converged over the last few decades. Why do you think your observed differences will persist (and/or have persisted)?
You should then apply your theory to your specific context. Do the mechanisms you propose show up? You don’t have to do your own data collection/analysis (although it is strongly encouraged), but your paper does need to take the real world seriously. I would rather you didn’t try to write about all countries at once – you should really pick a specific place or two. Use specific details about those places to inform your argument.
You can draw from academic papers, policy briefs, newspaper articles, your own experiences, etc. Be sure think about causality – just because you see a relationship in the data, it doesn’t mean that it represents a causal effect (I’m not saying that you need an experiment, just that you need to be honest about what your data shows). If you want, you can describe why the different equilibria emerged – why do people behave differently? Hysteresis? Luck? Something else?
As we saw when we discussed the hunger poverty trap, mechanisms existing does not mean that there will be multiple equilibria (so: hunger probably does cause people to be less productive, and poorer people do eat less, but neither effect is large enough to create an S-shaped curve for the relationship between hunger today and hunger tomorrow). Given your answers in (b), do you think multiple equilibria is an explanation for the phenomena you describe in (a)? It is totally fine if the answer is “no” – please do not start a new topic if you discover that your theory is wrong. As long as your theory is plausible and you do good empirical work, I don’t care about the theory being correct or not. However, you should not say that your theory is correct if the evidence isn’t there.
The papers are graded holistically, so you don’t need to give each section equal weight: if you are really excited about theory (for instance, if you want to model your theory on the computer like in the third problem set), you can focus on that at the expense of the other sections (although you should probably talk with me first if you want to make the whole paper about one of the parts). In the past, students have deviated further from the prompt (for instance replicating the data analysis of a published paper, or discussing a policy whose motivation is shifting a group from one equilibrium to another), please talk with me if you are interested.
I will not grade you on the elegance of your writing, but your papers should at least be copy-edited (spelling and grammar checked). Similarly, you should cite your sources in a consistent & clear manner, but I do not care about the specific format.
Your essays should be around 2500 words, or roughly 10 double spaced pages of text. This is not very long, so please keep your paper focused: you don’t need to spend a page writing about the general theory of multiple equilibria before getting to your specific thesis. Please submit a (stapled & typed) hardcopy of this assignment in class, in my office, or in my mailbox on the 6th floor of 19 W4th Street. You must also submit a pdf of your paper to Brightspace. Everyone who wants one can get an extension until December 22nd at noon (you don’t have to ask). No further extensions will be given.
[1] To give a silly example: short hair is more useful if you are wearing a helmet, which is why in the West it is more traditional for men to have short hair. The short hair equilibrium persists even though helmet wearing is now fairly uncommon.
[2] The topic barely has to be about economics – as long as you are making an argument for multiple equilibria, I’m happy.