Wealth condensation in a simple model of economy

Jean-Philippe Bouchaud and Marc Mézard

Physica A: Statistical Mechanics and its Applications, 2000, vol. 282, issue 3, 536-545

Abstract: We introduce a simple model of economy, where the time evolution is described by an equation capturing both exchange between individuals and random speculative trading, in such a way that the fundamental symmetry of the economy under an arbitrary change of monetary units is insured. We investigate a mean-field limit of this equation and show that the distribution of wealth is of the Pareto (power-law) type. The Pareto behaviour of the tails of this distribution appears to be robust for finite range models, as shown using both a mapping to the random ‘directed polymer’ problem, as well as numerical simulations. In this context, a phase transition between an economy dominated by a few individuals and a situation where the wealth is more evenly spread out, is found. An interesting outcome is that the distribution of wealth tends to be very broadly distributed when exchanges are limited, either in amplitude or topologically. Favouring exchanges (and, less surprisingly, increasing taxes) seems to be an efficient way to reduce inequalities.

Keywords: Pareto distribution; Multiplicative processes; Directed polymers (search for similar items in EconPapers)
Date: 2000
References: View complete reference list from CitEc
Citations: View citations in EconPapers (135)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:282:y:2000:i:3:p:536-545

DOI: 10.1016/S0378-4371(00)00205-3

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