Barriers to Development: The Interplay between External Constraints and Individual Preferences

People living in extreme poverty often seem to be caught in a poverty trap. There is, however, little agreement on the primary causes of persistent poverty: External constraints, such as a lack of adequate borrowing, saving, and insurance opportunities, certainly play a role. Yet, the positive impact when seemingly critical institutions are implemented is often lower than expected. One explanation may lie in behavioral factors: evidence suggests that decision-making of the poor is often governed by extreme risk aversion, low levels of trust and trustworthiness, and myopia. Such accounts are, however, complemented by anecdotes of very shrewd behavior in the face of extraordinary difficulties. It is likely that external constraints and behavior are intertwined, yet the underlying mechanisms are far from clear. This workshop aims at bringing together scholars who have done work on either or both of these dimensions, and to stimulate the debate about the relative importance of the different aspects.