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The Inequality Process as a wealth maximizing process

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  • Angle, John

Abstract

The One Parameter Inequality Process (OPIP) long predates the Saved Wealth Model (SWM) to which it is isomorphic up to the different choice of stochastic driver of wealth exchange. Both are stochastic interacting particle systems intended to model wealth and income distribution. The OPIP and other versions of the Inequality Process explain many aspects of wealth and income distribution but have gone undiscussed in econophysics. The OPIP is a jump process with a discrete 0,1 uniform random variate driving the exchange of wealth between two particles, while the SWM, as an extension of the stochastic version of the ideal gas model, is driven by a continuous uniform random variate with support at [0.0,1.0]. The OPIP's stationary distribution is a Lévy stable distribution attracted to the Pareto pdf near the (hot) upper bound of the OPIP's parameter, ω, and attracted to the normal (Gaussian) pdf toward the (cool) lower bound of ω. A gamma pdf model approximating the OPIP's stationary distribution is heuristically derived from the solution of the OPIP. The approximation works for ω<.5, better as ω→0. The gamma pdf model has parameters in terms of ω. The Inequality Process with Distributed Omega (IPDO) is a generalization of the OPIP. In the IPDO each particle can have a unique value of its parameter, i.e., particle i has ωi. The meta-model of the Inequality Process implies that smaller ω is associated with higher skill level among workers. This hypothesis is confirmed in a test of the IPDO. Particle wealth gain or loss in the OPIP and IPDO is more clearly asymmetric than in the SWM (λ≠0). Time-reversal asymmetry follows from asymmetry of gain and loss. While the IPDO scatters wealth, it also transfers wealth from particles with larger ω to those with smaller ω, particles that according to the IPDO's meta-model are more productive of wealth, nourishing wealth production. The smaller the harmonic mean of the ωi's in the IPDO population of particles, the more wealth is concentrated in particles with smaller ω, the less noise and the more ω signal there is in particle wealth, and the deeper the time horizon of the process. The IPDO wealth concentration mechanism is simpler than Maxwell's Demon.

Suggested Citation

  • Angle, John, 2006. "The Inequality Process as a wealth maximizing process," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 367(C), pages 388-414.
  • Handle: RePEc:eee:phsmap:v:367:y:2006:i:c:p:388-414
    DOI: 10.1016/j.physa.2005.11.017
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. John Angle, 2007. "The Macro Model of the Inequality Process and The Surging Relative Frequency of Large Wage Incomes," Papers 0705.3430, arXiv.org.
    2. Chakrabarti, Anindya S. & Chakrabarti, Bikas K., 2009. "Microeconomics of the ideal gas like market models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(19), pages 4151-4158.
    3. Troy Tassier, 2013. "Handbook of Research on Complexity, by J. Barkley Rosser, Jr. and Edward Elgar," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(1), pages 132-133.
    4. Sokolov, Andrey & Melatos, Andrew & Kieu, Tien, 2010. "Laplace transform analysis of a multiplicative asset transfer model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(14), pages 2782-2792.
    5. Thomas Lux, 2009. "Applications of Statistical Physics in Finance and Economics," Chapters,in: Handbook of Research on Complexity, chapter 9 Edward Elgar Publishing.
    6. E. Samanidou & E. Zschischang & D. Stauffer & T. Lux, 2007. "Agent-based Models of Financial Markets," Papers physics/0701140, arXiv.org.
    7. Lux, Thomas, 2008. "Applications of statistical physics in finance and economics," Kiel Working Papers 1425, Kiel Institute for the World Economy (IfW).
    8. Costas Efthimiou & Adam Wearne, 2016. "Household Income Distribution in the USA," Papers 1602.06234, arXiv.org.
    9. Anirban Chakraborti & Ioane Muni Toke & Marco Patriarca & Frédéric Abergel, 2011. "Econophysics review: II. Agent-based models," Post-Print hal-00621059, HAL.
    10. Chakrabarti, Anindya S. & Chakrabarti, Bikas K., 2010. "Statistical theories of income and wealth distribution," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-31.
    11. Sarabia, José María & Jordá, Vanesa, 2014. "Explicit expressions of the Pietra index for the generalized function for the size distribution of income," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 416(C), pages 582-595.
    12. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
    13. Guy Katriel, 2014. "Directed Random Market: the equilibrium distribution," Papers 1404.4068, arXiv.org.
    14. Andrey Sokolov & Andrew Melatos & Tien Kieu, 2010. "Laplace transform analysis of a multiplicative asset transfer model," Papers 1004.5169, arXiv.org.
    15. Antonio Doria, Francisco, 2011. "J.B. Rosser Jr. , Handbook of Research on Complexity, Edward Elgar, Cheltenham, UK--Northampton, MA, USA (2009) 436 + viii pp., index, ISBN 978 1 84542 089 5 (cased)," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 196-204, April.
    16. Lorenzo Pareschi & Giuseppe Toscani, 2014. "Wealth distribution and collective knowledge. A Boltzmann approach," Papers 1401.4550, arXiv.org.
    17. Okayasu, Tomoo & Okuro, Toshiya & Jamsran, Undarmaa & Takeuchi, Kazuhiko, 2010. "An intrinsic mechanism for the co-existence of different survival strategies within mobile pastoralist communities," Agricultural Systems, Elsevier, vol. 103(4), pages 180-186, May.

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