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Aspects of Pareto distributions

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  • Johan Fellman

Abstract

Different skew models, such as the lognormal and the Pareto functions, have been proposed as suitable descriptions of income distribution. Specific distributions are usually applied in empirical investigations. It is a common opinion that the Pareto curve often provides an adequate description of higher incomes. Recently, double Pareto distributions that obey the power law in both the upper and lower tails have been suggested to reflect a general distribution of personal income. In this study, the literature concerning double Pareto models is presented and the model is applied to Finnish income data. JEL classification numbers: I32.

Suggested Citation

  • Johan Fellman, 2021. "Aspects of Pareto distributions," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 10(1), pages 1-4.
    • Handle: RePEc:spt:stecon:v:10:y:2021:i:1:f:10_1_4
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    References listed on IDEAS

    as
    1. Todorova, Lora & Vogt, Bodo, 2011. "Power law distribution in high frequency financial data? An econometric analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4433-4444.
    2. Johan Fellman, 2012. "Estimation of Gini coefficients using Lorenz curves," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 1(2), pages 1-3.
    3. Reed, William J., 2001. "The Pareto, Zipf and other power laws," Economics Letters, Elsevier, vol. 74(1), pages 15-19, December.
    4. William J. Reed & Fan Wu, 2008. "New Four- and Five-Parameter Models for Income Distributions," Economic Studies in Inequality, Social Exclusion, and Well-Being, in: Duangkamon Chotikapanich (ed.), Modeling Income Distributions and Lorenz Curves, chapter 11, pages 211-223, Springer.
    5. Xavier Gabaix, 1999. "Zipf's Law for Cities: An Explanation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(3), pages 739-767.
    6. Toda, Alexis Akira, 2012. "The double power law in income distribution: Explanations and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 364-381.
    7. Mark Newman, 2000. "The power of design," Nature, Nature, vol. 405(6785), pages 412-413, May.
    8. Alan Harrison, 1981. "Earnings by Size: A Tale of Two Distributions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(4), pages 621-631.
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    More about this item

    Keywords

    Maximum likelihood estimate; Method of moments; Bayesian method; Mean Squared Error; Lognormal; double Pareto; Coefficient of determination; survival function; Geometric Brownian motion.;
    All these keywords.

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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