A game theoretic approach to development economics: Three essays on poverty traps

Poverty traps are self-enforcing mechanisms that an economy caught in a vicious cycle of underdevelopment persistently. It is often modeled as a low-level equilibrium in a model of coordination failures. With these mechanisms a different picture of development appears. According to this growth is not automatic, small initial differences are magnified and then propagated over time. Then convergence between countries become impossible, poor become poorer, rich become richer. Therefore first step to prosperity should be identifying these poverty traps and finding the way of how to get out of these traps. This thesis consists of three essays on poverty traps. With first paper, we organized poverty traps into three groups as structural, behavioral and institutional. The aim of this paper is to analyze poverty traps in game theoretic models by giving examples from different countries. In second paper we model clientelism which is one of institutional traps as a coordination game. After that, by using evolutionary game theory, we will show how a society in which citizens decide whether to be clientelistic or not can evolve to clientelism. As a result, we will see how individuals? imitative behaviors drive the economy into a low level equilibrium (poverty trap) with political clientelism or a high level equilibrium in which democracy works. In third paper, we will model agency work which is another institutional trap as a coordination game which is played between a worker and a firm. In both of paper, we will see the evolution of such an economy depends on initial distribution of the citizens. Results of these papers are important for an economy which is placed in the basin of attraction of an institutional poverty trap, to analyze strategic actions to overcome it. Therefore, new policies and recommendations in development economics may be enhanced by using game theoretic approach