Statistical dynamics of wealth inequality in stochastic models of growth

Jordan T. Kemp and Luís M.A. Bettencourt

Physica A: Statistical Mechanics and its Applications, 2022, vol. 607, issue C

Abstract: Understanding the statistical dynamics of growth and inequality is a fundamental challenge to ecology and society. Recent analyses of wealth and income in contemporary societies show that economic inequality is very dynamic and that individuals experience substantially different wealth growth rates over time. However, despite a fast-growing body of evidence for the importance of fluctuations, we still lack a general statistical theory for understanding the dynamical effects of heterogeneous growth across a population. Here we derive the statistical dynamics of correlated wealth growth rates in heterogeneous populations. We show that correlations between growth rate fluctuations at the individual level influence aggregate population growth, while only driving inequality on short time scales. We also find that growth rate fluctuations are a much stronger driver of long-term inequality than income volatility. Our findings show that the dynamical effects of statistical fluctuations in growth rates are critical for understanding the emergence of inequality over time and motivate a greater focus on the properties and endogenous origins of growth rates in stochastic environments.

Keywords: Statistical dynamics; Population dynamics; Wealth inequality; Geometric Brownian motion; Heterogeneous population; Econophysics; Growth; Stochastic dynamics (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:607:y:2022:i:c:s0378437122007385

DOI: 10.1016/j.physa.2022.128180

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