A model of income distribution

Pierre Pestieau and Uri M. Possen

European Economic Review, 1982, vol. 17, issue 3, 279-294

Abstract: The paper presents a model of income distribution that makes use of Gibrat's law of proportionate effect to explain the way income is distributed and how the distribution changes over time in a population made of families characterized by a specific life cycle and initial endowment. The stochastic factor in each period is shown to be the result of deliberate choices by individual decision-makers regarding their savings, investment, and bequests given their inherited wealth and natural ability. The source of randomness is two-fold: uncertainty about the rates of return and randomness of the distribution of natural skills.

Date: 1982
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:17:y:1982:i:3:p:279-294

DOI: 10.1016/S0014-2921(82)80064-0

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