The paper develops a theoretical model of endogenous wealth distribution, showing that a logarithmic mean constraint in the maximum entropy formalism leads to a power law distribution. On the level of economic theory, the model implies two trade-offs: first, the higher the aggregate growth of wealth portfolios and, second, the higher the average turnover activity in individual portfolios, the less equal the distribution of wealth. Empirical estimates of the power law exponent are extracted from Lorenz type data for different countries in different time periods and a numerical example illustrates the model.
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Find related papers by JEL classification: C0 - Mathematical and Quantitative Methods - - General D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
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