Thermodynamics of inequalities: From precariousness to economic stratification

Matteo Smerlak

Physica A: Statistical Mechanics and its Applications, 2016, vol. 441, issue C, 40-50

Abstract: Growing economic inequalities are observed in several countries throughout the world. Following Pareto, the power-law structure of these inequalities has been the subject of much theoretical and empirical work. But their nonequilibrium dynamics, e.g. after a policy change, remains incompletely understood. Here we introduce a thermodynamical theory of inequalities based on the analogy between economic stratification and statistical entropy. Within this framework we identify the combination of upward mobility with precariousness as a fundamental driver of inequality. We formalize this statement by a “second-law” inequality displaying upward mobility and precariousness as thermodynamic conjugate variables. We estimate the time scale for the “relaxation” of the wealth distribution after a sudden change of the after-tax return on capital. Our method can be generalized to gain insight into the dynamics of inequalities in any Markovian model of socioeconomic interactions.

Keywords: Econophysics; Wealth inequality; Second law of thermodynamics; Fluctuation theorem; Markov process; Entropy (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:441:y:2016:i:c:p:40-50

DOI: 10.1016/j.physa.2015.09.001

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