Economic inequality and mobility for stochastic models with multiplicative noise

Maria Letizia Bertotti, Amit K Chattopadhyay and Giovanni Modanese

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Abstract: In this article, we discuss a dynamical stochastic model that represents the time evolution of income distribution of a population, where the dynamics develop from an interplay of multiple economic exchanges in the presence of multiplicative noise. The model remit stretches beyond the conventional framework of a Langevin-type kinetic equation in that our model dynamics is self-consistently constrained by dynamical conservation laws emerging from population and wealth conservation. This model is numerically solved and analyzed to interpret the inequality of income as a function of relevant dynamical parameters like the {\it mobility} $M$ and the {\it total income} $\mu$. In our model, inequality is quantified by the {\it Gini index} $G$. In particular, correlations between any two of the mobility index $M$ and/or the total income $\mu$ with the Gini index $G$ are investigated and compared with the analogous correlations resulting from an equivalent additive noise model. Our findings highlight the importance of a multiplicative noise based economic modeling structure in the analysis of inequality. The model also depicts the nature of correlation between mobility and total income of a population from the perspective of inequality measure.

Date: 2017-02
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