Allocating Opportunities in a Dynamic Model of Intergenerational Mobility

TL;DR

This paper presents a dynamic model for allocating opportunities like education to improve intergenerational mobility, revealing that optimal policies may favor lower socioeconomic groups to maximize societal benefits over generations.

Contribution

It introduces a novel dynamic optimization framework for opportunity allocation that accounts for intergenerational effects and mobility bottlenecks, highlighting conditions for affirmative action.

Findings

Optimal allocations can favor low socioeconomic groups over higher ones.

The model predicts both temporary and persistent affirmative action outcomes.

Extensions include complex socioeconomic mobility processes.

Abstract

Opportunities such as higher education can promote intergenerational mobility, leading individuals to achieve levels of socioeconomic status above that of their parents. We develop a dynamic model for allocating such opportunities in a society that exhibits bottlenecks in mobility; the problem of optimal allocation reflects a trade-off between the benefits conferred by the opportunities in the current generation and the potential to elevate the socioeconomic status of recipients, shaping the composition of future generations in ways that can benefit further from the opportunities. We show how optimal allocations in our model arise as solutions to continuous optimization problems over multiple generations, and we find in general that these optimal solutions can favor recipients of low socioeconomic status over slightly higher-performing individuals of high socioeconomic status -- a form of socioeconomic affirmative action that the society in our model discovers in the pursuit of purely payoff-maximizing goals. We characterize how the structure of the model can lead to either temporary or persistent affirmative action, and we consider extensions of the model with more complex processes modulating the movement between different levels of socioeconomic status.