Evolutionary Model of the Personal Income Distribution

Joachim Kaldasch

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this work is to establish the personal income distribution from the elementary constituents of a free market; products of a representative good and agents forming the economic network. The economy is treated as a self-organized system. Based on the idea that the dynamics of an economy is governed by slow modes, the model suggests that for short time intervals a fixed ratio of total labour income (capital income) to net income exists (Cobb-Douglas relation). Explicitly derived is Gibrat’s law from an evolutionary market dynamics of short term fluctuations. The total private income distribution is shown to consist of four main parts. From capital income of private firms the income distribution contains a lognormal distribution for small and a Pareto tail for large incomes. Labour income contributes an exponential distribution. Also included is the income from a social insurance system, approximated by a Gaussian peak. The evolutionary model is able to reproduce the stylized facts of the income distribution, shown by a comparison with empirical data of a high resolution income distribution. The theory suggests that in a free market competition between products is ultimately the origin of the uneven income distribution.

Keywords: income distribution; labour income; capital income; Gibrat's law; power law distribution; exponential distribution; Laplace distribution; evolutionary economics; self-organization; competition; price dispersion (search for similar items in EconPapers)
JEL-codes: D01 D11 D31 D33 E11 (search for similar items in EconPapers)
Date: 2012-03-30
New Economics Papers: this item is included in nep-evo and nep-hme
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Related works:
Journal Article: Evolutionary model of the personal income distribution (2012)
Working Paper: Evolutionary Model of the Personal Income Distribution (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:37865

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