The Education Trap: Could a grades-focussed educational system be perpetuating poverty in advanced economies?

Abstract

Existing economic theory does not adequately explain the very low educational investment of disadvantaged children in advanced economies. We propose a new model of educational investment that endogenously separates disadvantaged children into a divergent low-investment equilibrium, and we observe that this education trap could transmit poverty between generations. We show that the education trap arises when a grades-focussed educational system induces children to care about their performance in each of the incremental educational investment decisions that they face on a daily basis, and we respond by deriving tangible policy recommendations that could establish an alternative, learning-focussed system.