From entropy-maximization to equality-maximization: Gauss, Laplace, Pareto, and Subbotin

Iddo Eliazar

Physica A: Statistical Mechanics and its Applications, 2014, vol. 415, issue C, 479-492

Abstract: The entropy-maximization paradigm of statistical physics is well known to generate the omnipresent Gauss law. In this paper we establish an analogous socioeconomic model which maximizes social equality, rather than physical disorder, in the context of the distributions of income and wealth in human societies. We show that–on a logarithmic scale–the Laplace law is the socioeconomic equality-maximizing counterpart of the physical entropy-maximizing Gauss law, and that this law manifests an optimized balance between two opposing forces: (i) the rich and powerful, striving to amass ever more wealth, and thus to increase social inequality; and (ii) the masses, struggling to form more egalitarian societies, and thus to increase social equality. Our results lead from log-Gauss statistics to log-Laplace statistics, yield Paretian power-law tails of income and wealth distributions, and show how the emergence of a middle-class depends on the underlying levels of socioeconomic inequality and variability. Also, in the context of asset-prices with Laplace-distributed returns, our results imply that financial markets generate an optimized balance between risk and predictability.

Keywords: Entropy-maximization; Equality-maximization; Pietra mean; Subbotin law; Pareto tails; Laplace-distributed returns (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:415:y:2014:i:c:p:479-492

DOI: 10.1016/j.physa.2014.08.011

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