The Pareto law of incomes—an explanation and an extension

William J. Reed

Physica A: Statistical Mechanics and its Applications, 2003, vol. 319, issue C, 469-486

Abstract: A stochastic model for the generation of observed income distributions is used to provide an explanation for the Pareto law of incomes. Analysis of the model also yields a prediction of Paretian (power law) behaviour in the lower tail of the distribution and this is shown to occur in a number of empirical distributions. A tractable four-parameter distribution is derived, and shown to fit extremely well to a number of different empirical income distributions.

Keywords: Pareto law; Income distribution; GBM; Mixture model; Double Pareto-lognormal distribution (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (68)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:319:y:2003:i:c:p:469-486

DOI: 10.1016/S0378-4371(02)01507-8

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