Far from equilibrium: Wealth reallocation in the United States

Yonatan Berman, Ole Peters and Alexander Adamou

Papers from arXiv.org

Abstract: Studies of wealth inequality often assume that an observed wealth distribution reflects a system in equilibrium. This constraint is rarely tested empirically. We introduce a simple model that allows equilibrium but does not assume it. To geometric Brownian motion (GBM) we add reallocation: all individuals contribute in proportion to their wealth and receive equal shares of the amount collected. We fit the reallocation rate parameter required for the model to reproduce observed wealth inequality in the United States from 1917 to 2012. We find that this rate was positive until the 1980s, after which it became negative and of increasing magnitude. With negative reallocation, the system cannot equilibrate. Even with the positive reallocation rates observed, equilibration is too slow to be practically relevant. Therefore, studies which assume equilibrium must be treated skeptically. By design they are unable to detect the dramatic conditions found here when data are analysed without this constraint.

Date: 2016-05
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://arxiv.org/pdf/1605.05631 Latest version (application/pdf)

Related works:
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:arx:papers:1605.05631

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().