Dynamics of wealth inequality
Abstract
We study an agentbased model of evolution of wealth distribution in a macroeconomic system. The evolution is driven by multiplicative stochastic fluctuations governed by the law of proportionate growth and interactions between agents. We are mainly interested in interactions increasing wealth inequality, that is, in a local implementation of the accumulated advantage principle. Such interactions destabilise the system. They are confronted in the model with a global regulatory mechanism that reduces wealth inequality. There are different scenarios emerging as a net effect of these two competing mechanisms. When the effect of the global regulation (economic interventionism) is too weak, the system is unstable and it never reaches equilibrium. When the effect is sufficiently strong, the system evolves towards a limiting stationary distribution with a Pareto tail. In between there is a critical phase. In this phase, the system may evolve towards a steady state with a multimodal wealth distribution. The corresponding cumulative density function has a characteristic stairway pattern that reflects the effect of economic stratification. The stairs represent wealth levels of economic classes separated by wealth gaps. As we show, the pattern is typical for macroeconomic systems with a limited economic freedom. One can find such a multimodal pattern in empirical data, for instance, in the highest percentile of wealth distribution for the population in urban areas of China.
 Publication:

Comptes Rendus Physique
 Pub Date:
 May 2019
 DOI:
 10.1016/j.crhy.2019.05.011
 arXiv:
 arXiv:1802.01991
 Bibcode:
 2019CRPhy..20..349B
 Keywords:

 Wealth inequality;
 Wealth distribution;
 Population dynamics;
 Stochastic evolution;
 Agentbased modelling;
 Monte Carlo methods;
 Physics  Physics and Society;
 Condensed Matter  Statistical Mechanics;
 Quantitative Finance  General Finance
 EPrint:
 17 pages, 8 figures (references added, some material moved to appendix)