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Influence of saving propensity on the power-law tail of the wealth distribution

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  • Patriarca, Marco
  • Chakraborti, Anirban
  • Germano, Guido
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    Abstract

    Some general features of statistical multi-agent economic models are reviewed, with particular attention to the dependence of the equilibrium wealth distribution on the agents’ saving propensities. It is shown that in a finite system of agents with a continuous saving propensity distribution a power-law tail with Pareto exponent α=1 can appear also when agents do not have saving propensities distributed over the whole interval between zero and one. Rather, a power-law can be observed in a finite interval of wealth, whose lower and upper ends are shown to be determined by the lower and upper cutoffs, respectively, of the saving propensity distribution. It is pointed out that a cutoff of the power-law tail can arise also through a different mechanism, when the number of agents is small enough. Numerical simulations have been carried out by implementing a procedure for assigning saving propensities homogeneously, which results in a smoother wealth distributions and correspondingly wider power-law intervals than other procedures based on random algorithms.

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    Bibliographic Info

    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 369 (2006)
    Issue (Month): 2 ()
    Pages: 723-736

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    Handle: RePEc:eee:phsmap:v:369:y:2006:i:2:p:723-736

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    Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

    Related research

    Keywords: Economics; Econophysics; Wealth distribution; Power-laws; Statistical mechanics;

    References

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    1. Bouchaud, Jean-Philippe & Mézard, Marc, 2000. "Wealth condensation in a simple model of economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 282(3), pages 536-545.
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    Cited by:
    1. Bertram Düring & Daniel Matthes & Giuseppe Toscani, 2008. "A Boltzmann-type Approach to the Formation of Wealth Distribution Curves," CoFE Discussion Paper 08-05, Center of Finance and Econometrics, University of Konstanz.
    2. Chakrabarti, Anindya S., 2011. "An almost linear stochastic map related to the particle system models of social sciences," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4370-4378.
    3. Sebastian Guala, 2009. "Taxes in a Wealth Distribution Model by Inelastically Scattering of Particles," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 7(1), pages 1-7.

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