Financial accumulation implies ever-increasing wealth inequality

Yuri Biondi and Stefano Olla ()
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Stefano Olla: Université Paris-Dauphine, PSL

Journal of Economic Interaction and Coordination, 2020, vol. 15, issue 4, No 7, 943-951

Abstract: Abstract Wealth inequality is an important matter for economic theory and policy. The recent rise in wealth inequality has been discussed in connection with the recent development of active global financial markets. The existing literature on wealth distribution links wealth inequality to a variety of drivers. Our approach develops a minimalist modelling strategy that combines three featuring mechanisms: active financial markets, individual wealth accumulation and compound interest structure. We provide mathematical proof that accumulated financial investment returns involve ever-increasing wealth concentration and inequality across individual investors most of the time. This cumulative effect over space and time depends on financial accumulation processes, including under efficient financial markets, which generate a fair investment game that individual investors repeatedly play through time.

Keywords: Inequality; Economic process; Compound return; Simple return; Minimal institution (search for similar items in EconPapers)
JEL-codes: C46 D31 D63 E02 E21 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11403-020-00281-7

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