A Statistical Equilibrium Model of Wealth Distribution

Mishael Milaković

No 214, Computing in Economics and Finance 2001 from Society for Computational Economics

Abstract: The paper develops a theoretical model of endogenous wealth distribution, showing that a logarithmic mean constraint in the maximum entropy formalism leads to a power law distribution. On the level of economic theory, the model implies two trade-offs: first, the higher the aggregate growth of wealth portfolios and, second, the higher the average turnover activity in individual portfolios, the less equal the distribution of wealth. Empirical estimates of the power law exponent are extracted from Lorenz type data for different countries in different time periods and a numerical example illustrates the model.

Keywords: Maximum entropy principle; statistical equilibrium; power laws; distribution of wealth (search for similar items in EconPapers)
JEL-codes: C0 D31 E6 (search for similar items in EconPapers)
Date: 2001-04-01
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sce:scecf1:214

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