Thermodynamics of inequalities: from precariousness to economic stratification

Matteo Smerlak

Papers from arXiv.org

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.

Date: 2014-06, Revised 2014-11
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Published in Physica A 441, 40-50 (2016)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1406.6441

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