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Division Rules, Network Formation, and the Evolution of Wealth

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  • Nejat Anbarci

    ()
    (Department of Economics, Florida International University)

  • John Boyd

    ()
    (Department of Economics, Florida International University)

Abstract

We start with an initial wealth distribution. Each agent may establish at most one link with any agent in each period, yielding a surplus that agents split according to a uniform division rule. Wealth evolves by adding the payoffs to current wealth. Many long-run wealth distributions can arise, depending on the division rule and initial wealth distribution. The richest agent may remain richest or the poorest may become rich. Examing several division rules, we find that two factors determine the long-run wealth distribution: the size of the gain from a link, and the incentive to link to rich or poor.

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File URL: http://casgroup.fiu.edu/pages/docs/2247/1275232364_05-07.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0507.

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Length: 18 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:fiu:wpaper:0507

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Keywords: Network formation; long-run wealth distribution;

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  1. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Piccione, Michele & Rubinstein, Ariel, 2004. "The curse of wealth and power," Journal of Economic Theory, Elsevier, vol. 117(1), pages 119-123, July.
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