Understanding the causes of income inequality in complex economic systems
AbstractWe suggest in this paper that inequality in economic systems can be profitably analysed using complex systems analysis. We explain how we can capture, analytically, complexity in an economic system by applying graph theory in networks. We then develop a highly stylised theoretical model of how income inequality arises naturally due to the fact that a skewed income distribution necessarily arises from â€œpreferential attachmentâ€ in a complex economic system. We characterise this process, both in the market system broadly defined and, specifically, within a firm. It is argued that such a complex systems approach (despite being vastly simplified here) provides a superior basis for understanding income inequality compared to standard economic analysis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 478.
Date of creation: 10 May 2013
Date of revision:
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frank Schweitzer & Giorgio Fagiolo & Didier Sornette & Fernando Vega-Redondo & Douglas R. White, 2009.
"Economic Networks: What Do We Know And What Do We Need To Know?,"
Advances in Complex Systems (ACS),
World Scientific Publishing Co. Pte. Ltd., vol. 12(04), pages 407-422.
- Frank Schweitzer & Giorgio Fagiolo & Didier Sornette & Fernando Vega-Redondo & Douglas R. White, . "Economic Networks: What do we know and what do we need to know?," Working Papers CCSS-09-010, ETH Zurich, Chair of Systems Design.
- Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
- Prof John Foster, 2004.
"From Simplistic to Complex Systems in Economics,"
Discussion Papers Series
335, School of Economics, University of Queensland, Australia.
- Matthew Rabin., 1997.
"Psychology and Economics,"
Economics Working Papers
97-251, University of California at Berkeley.
- Earl, P.E., 1990.
"Economics And Psychology: A Survey,"
1990-04, Tasmania - Department of Economics.
- Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
- Peter Earl & Tim Wakeley, 2010. "Alternative perspectives on connections in economic systems," Journal of Evolutionary Economics, Springer, vol. 20(2), pages 163-183, April.
- Foster, John, 1993. "Economics and the Self-Organisation Approach: Alfred Marshall Revisited," Economic Journal, Royal Economic Society, vol. 103(419), pages 975-91, July.
- Hausman, Daniel M, 1989. "Economic Methodology in a Nutshell," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 115-27, Spring.
- Corso, G. & Lucena, L.S. & Thomé, Z.D., 2003. "The small-world of economy: a speculative proposal," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 430-436.
- Oliver E. Williamson, 2002. "The Theory of the Firm as Governance Structure: From Choice to Contract," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 171-195, Summer.
- Sheri M. Markose, 2004.
"Computability and Evolutionary Complexity: Markets As Complex Adaptive Systems (CAS),"
Economics Discussion Papers
574, University of Essex, Department of Economics.
- Sheri M. Markose, 2005. "Computability and Evolutionary Complexity: Markets as Complex Adaptive Systems (CAS)," Economic Journal, Royal Economic Society, vol. 115(504), pages F159-F192, 06.
- Jeong-Yoo Kim & Hang-Hyun Jo, 2010. "A signalling explanation for preferential attachment in the evolution of social networks," Journal of Evolutionary Economics, Springer, vol. 20(3), pages 375-393, June.
- Mary Gregory & Miriam Beblo & Wiemer Salverda & Ioannis Theodossiou, 2009. "Introduction," Oxford Economic Papers, Oxford University Press, vol. 61(suppl_1), pages i1-i10, April.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Matthew O. Jackson & Brian W. Rogers, 2007. "Meeting Strangers and Friends of Friends: How Random Are Social Networks?," American Economic Review, American Economic Association, vol. 97(3), pages 890-915, June.
- Richard R. Nelson & Sidney G. Winter, 2002. "Evolutionary Theorizing in Economics," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 23-46, Spring.
- Stuart McDonald & Mohamad Alghamdi & Bernard Pailthorpe, 2012. "The Emergence of a Small World in a Network of Research Joint Ventures," Discussion Papers Series 469, School of Economics, University of Queensland, Australia.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Randal Anderson).
If references are entirely missing, you can add them using this form.