Finite market size as a source of extreme wealth inequality and market instability

Zhi-Feng Huang and Sorin Solomon

Physica A: Statistical Mechanics and its Applications, 2001, vol. 294, issue 3, 503-513

Abstract: We study the finite-size effects in some scaling systems, and show that the finite number of agents N leads to a cut-off in the upper value of the Pareto law for the relative individual wealth. The exponent α of the Pareto law obtained in stochastic multiplicative market models is crucially affected by the fact that N is always finite in real systems. We show that any finite value of N leads to properties which can differ crucially from the naive theoretical results obtained by assuming an infinite N. In particular, finite N may cause in the absence of an appropriate social policy extreme wealth inequality α<1 and market instability.

Keywords: Power law; Multiplicative process; Cut-off; Finite-size effect (search for similar items in EconPapers)
Date: 2001
References: View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437101001133
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
Working Paper: Finite market size as a source of extreme wealth inequality and market instability (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:294:y:2001:i:3:p:503-513

DOI: 10.1016/S0378-4371(01)00113-3

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().