Limiting risk to reduce inequality: Insights from the Yard-Sale model

Lautaro Giordano, Ignacio Cortés, Sebastian Gonçalves and María Fabiana Laguna

Physica A: Statistical Mechanics and its Applications, 2025, vol. 676, issue C

Abstract: Wealth inequality remains a critical socioeconomic challenge, driven by systemic dynamics and self-reinforcing mechanisms that amplify the economic imbalances. Simplified models from statistical physics provide valuable insights into the fundamental mechanisms governing wealth distribution. In this study, we extend the Yard-Sale model — a minimal kinetic exchange framework — to investigate how limiting risk in economic transactions affects inequality. While previous research demonstrates that such models naturally lead to wealth concentration, we introduce a mechanism that restricts the maximum risk agents can assume during exchanges. Numerical simulations reveal that this modification fosters more equitable wealth distributions and significantly reduces extreme disparities. These findings highlight the importance of individual-level constraints in shaping systemic outcomes, offering new perspectives on promoting economic balance.

Keywords: Econophysics; Wealth distribution; Inequality; Risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:676:y:2025:i:c:s0378437125005242

DOI: 10.1016/j.physa.2025.130872

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