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Evolutionary Model of the Personal Income Distribution

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  • Kaldasch, Joachim

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37865.

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Date of creation: 30 Mar 2012
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Handle: RePEc:pra:mprapa:37865

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Keywords: income distribution; labour income; capital income; Gibrat's law; power law distribution; exponential distribution; Laplace distribution; evolutionary economics; self-organization; competition; price dispersion;

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  1. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
  2. Joachim Kaldasch, 2013. "Evolutionary Model of a Anonymous Consumer Durable Market," Papers 1306.3395, arXiv.org.
  3. F. Pammolli & D. Fu & S. V. Buldyrev & M. Riccaboni & K. Matia & K. Yamasaki & H. E. Stanley, 2007. "A generalized preferential attachment model for business firms growth rates," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 57(2), pages 127-130, 05.
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  9. Kaldasch, Joachim, 2012. "Evolutionary model of the growth and size of firms," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(14), pages 3751-3769.
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