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Nonequilibrium thermodynamics of wealth condensation

  • Braun, Dieter
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    We analyze wealth condensation for a wide class of stochastic economy models on the basis of the economic analog of thermodynamic potentials, termed transfer potentials. The economy model is based on three common transfers modes of wealth: random transfer, profit proportional to wealth and motivation of poor agents to work harder. The economies never reach steady state. Wealth condensation is the result of stochastic tunneling through a metastable transfer potential. In accordance with reality, both wealth and income distribution transiently show Pareto tails for high-income subjects. For metastable transfer potentials, exponential wealth condensation is a robust feature. For example with 10% annual profit 1% of the population owns 50% of the wealth after 50 years. The time to reach such a strong wealth condensation is a hyperbolic function of the annual profit rate.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378437106001579
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    Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

    Volume (Year): 369 (2006)
    Issue (Month): 2 ()
    Pages: 714-722

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    Handle: RePEc:eee:phsmap:v:369:y:2006:i:2:p:714-722
    Contact details of provider: Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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    1. Fischer, Robert & Braun, Dieter, 2003. "Transfer potentials shape and equilibrate monetary systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 321(3), pages 605-618.
    2. Adrian Dragulescu & Victor M. Yakovenko, 2001. "Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States," Papers cond-mat/0103544, arXiv.org, revised Mar 2001.
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    4. Bouchaud, Jean-Philippe & Mézard, Marc, 2000. "Wealth condensation in a simple model of economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 282(3), pages 536-545.
    5. Fischer, Robert & Braun, Dieter, 2003. "Nontrivial bookkeeping: a mechanical perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 266-271.
    6. Nicola Scafetta & Sergio Picozzi & Bruce West, 2004. "An out-of-equilibrium model of the distributions of wealth," Quantitative Finance, Taylor & Francis Journals, vol. 4(3), pages 353-364.
    7. Drăgulescu, Adrian & Yakovenko, Victor M., 2001. "Exponential and power-law probability distributions of wealth and income in the United Kingdom and the United States," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 213-221.
    8. Adrian Dragulescu & Victor M. Yakovenko, 2000. "Statistical mechanics of money," Papers cond-mat/0001432, arXiv.org, revised Aug 2000.
    9. Jean-Philippe Bouchaud & Marc Mezard, 2000. "Wealth condensation in a simple model of economy," Science & Finance (CFM) working paper archive 500026, Science & Finance, Capital Fund Management.
    10. Nicola Scafetta & Sergio Picozzi & Bruce J. West, 2004. "An out-of-equilibrium model of the distributions of wealth," Papers cond-mat/0403045, arXiv.org.
    11. Iglesias, J.R. & Gonçalves, S. & Pianegonda, S. & Vega, J.L. & Abramson, G., 2003. "Wealth redistribution in our small world," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 327(1), pages 12-17.
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