There are two views as to why people stay poor. The equal opportunity view emphasizes that differences in individual traits like talent or motivation make the poor choose low productivity jobs. The poverty traps view emphasizes that access to opportunities depends on initial wealth and hence poor people have no choice but to work in low productivity jobs. We test the two views using the random allocation of an asset transfer program that gave some of the poorest women in Bangladesh access to the same job opportunities as their wealthier counterparts in the same villages. The data rejects the null of equal opportunities. Exploiting small variation in initial endowments, we estimate the transition equation and find that, if the program pushes individuals above a threshold level of initial assets, then they escape poverty, but, if it does not, they slide back into poverty. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated at baseline and that the gains arising from eliminating misallocation would far exceed the costs. Our findings imply that large one-off transfers that enable people to take on more productive occupations can help alleviate persistent poverty.

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In this article, we present a citizen-candidate model of representative democracy with endogenous lobbying. We find that lobbying induces policy compromise and always affects equilibrium policy outcomes. In particular, even though the policy preferences of lobbies are relatively extreme, lobbying biases the outcome of the political process toward the center of the policy space, and extreme policies cannot emerge in equilibrium. Moreover, in equilibrium, not all lobbies participate in the policy-making process.

This paper explores the extent to which the presence of ex-ante transaction costs may lead to failures of the Coase Theorem. In particular we identify and investigate the basic 'hold-up problem' which arises whenever the parties to a Coasian negotiation have to pay some ex-ante costs for the negotiation to take place. We then show that a 'Coasian solution' to this hold-up problem is not available. This is because a Coasian solution to the hold-up problem typically entails a negotation about the payment of the costs associated with the future negotiation which in turn is associated with a fresh set of ex-ante costs, and hence with a new hold-up problem.

In an environment in which both buyers and sellers can undertake match specific investments, the presence of market competition for matches may solve hold-up and coordination problems generated by the absence of complete contingent contracts. In particular, this paper shows that when matching is assortative and sellers' investments precede market competition then investments are constrained efficient. One equilibrium is efficient with efficient matches but also there can be equilibria with coordination failures. Different types of efficiency arise when buyers undertake investment before market competition. These inefficiencies lead to buyers' under-investment due to a hold-up problem but, when competition is at its peak, there is a unique equilibrium of the competition game with efficient matches -no coordination failures -and the aggregate hold-up inefficiency is small in a well defined sense, independent of market size.