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Retrospectives: Pareto's Law

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  • Joseph Persky

Abstract

Vilfredo Pareto, using data for England, a number of Italian cities, several German states, Paris, and Peru, plotted cumulative distributions of income for these countries on double logarithmic paper. He claimed that in each case the result was a straight line with about the same slope. Thus, he asserted a law of income distribution. I discuss Pareto's discovery of this relationship; his theory of income distribution; Pareto's Law and Pareto optimality; the attack on Pareto's Law; the counterattack; and the more recent literature. For all the excesses of the Paretian camp followers, there remains the significant insight that the history of all hitherto existing society is a history of social hierarchies. There is the feel of structure behind income distributions. Something is going on here.

Suggested Citation

  • Joseph Persky, 1992. "Retrospectives: Pareto's Law," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 181-192, Spring.
  • Handle: RePEc:aea:jecper:v:6:y:1992:i:2:p:181-92 Note: DOI: 10.1257/jep.6.2.181
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    References listed on IDEAS

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    1. Chipman, John S., 1974. "The welfare ranking of Pareto distributions," Journal of Economic Theory, Elsevier, vol. 9(3), pages 275-282, November.
    2. Warren M. Persons, 1909. "The Variability in the Distribution of Wealth and Income," The Quarterly Journal of Economics, Oxford University Press, vol. 23(3), pages 416-449.
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    Cited by:

    1. Philip Hans Franses & Stephanie Vermeer, 2012. "Inequality amongst the wealthiest and its link with economic growth," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2851-2858, August.
    2. Gutiérrez-Romero, Roxana, 2007. "The impact of Inequality on Economic Growth: Evidence for Mexico 1895-1994," Proceedings of the German Development Economics Conference, Göttingen 2007 11, Verein für Socialpolitik, Research Committee Development Economics.
    3. W. Walls, 1999. "Scaling laws, talent amplification, and executive compensation in the commercial bank industry," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(2), pages 133-142, June.
    4. Mishael Milakovic & Carolina Castaldi, 2004. "Turnover Activity in Wealth Portfolios," Computing in Economics and Finance 2004 120, Society for Computational Economics.
    5. Klass, Oren S. & Biham, Ofer & Levy, Moshe & Malcai, Ofer & Solomon, Sorin, 2006. "The Forbes 400 and the Pareto wealth distribution," Economics Letters, Elsevier, vol. 90(2), pages 290-295, February.
    6. Herzlinger, Regina E., 2010. "Healthcare reform and its implications for the U.S. economy," Business Horizons, Elsevier, vol. 53(2), pages 105-117, March.
    7. Jayadev, Arjun, 2008. "A power law tail in India's wealth distribution: Evidence from survey data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(1), pages 270-276.
    8. Xavier Gabaix, 2009. "Power Laws in Economics and Finance," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 255-294, May.
    9. Levy, Moshe, 2003. "Are rich people smarter?," Journal of Economic Theory, Elsevier, vol. 110(1), pages 42-64, May.
    10. Xavier Gabaix, 2016. "Power Laws in Economics: An Introduction," Journal of Economic Perspectives, American Economic Association, pages 185-206.
    11. Mornati Fiorenzo, 2005. "Sulle origini della legge di distribuzione del reddito di Pareto," CESMEP Working Papers 200503, University of Turin.
    12. Piotr Jaworski & Marcin Pitera, 2015. "The 20-60-20 Rule," Papers 1501.02513, arXiv.org, revised Aug 2015.
    13. Frank A. Cowell, 2008. "Income Distribution and Inequality," Chapters,in: The Elgar Companion to Social Economics, chapter 13 Edward Elgar Publishing.
    14. Homburg, Stefan, 1997. "Ursachen und Wirkungen eines zwischenstaatlichen Finanzausgleichs," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 61-95.
    15. Castaldi, Carolina & Milakovic, Mishael, 2007. "Turnover activity in wealth portfolios," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 537-552, July.
    16. Aloys Prinz, 2016. "Do capitalistic institutions breed billionaires?," Empirical Economics, Springer, pages 1319-1332.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals

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