Fokker-Planck description of wealth dynamics and the origin of Pareto's law
Abstract
The so-called "Yard-Sale Model" of wealth distribution posits that wealth is transferred between economic agents as a result of transactions whose size is proportional to the wealth of the less wealthy agent. In recent work [B. M. Boghosian, Phys. Rev. E89, 042804 (2014)], it was shown that this results in a Fokker-Planck equation governing the distribution of wealth. With the addition of a mechanism for wealth redistribution, it was further shown that this model results in stationary wealth distributions that are very similar in form to Pareto's well-known law. In this paper, a much simpler derivation of that Fokker-Planck equation is presented.
- Publication:
-
International Journal of Modern Physics C
- Pub Date:
- May 2014
- DOI:
- 10.1142/S0129183114410083
- arXiv:
- arXiv:1407.6851
- Bibcode:
- 2014IJMPC..2541008B
- Keywords:
-
- Pareto law;
- econophysics;
- wealth distribution;
- Fokker–Planck equation;
- 89.65.Gh;
- Economics;
- econophysics financial markets business and management;
- Quantitative Finance - General Finance;
- Physics - Physics and Society
- E-Print:
- 6 pages