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A study of UK household wealth through empirical analysis and a non-linear Kesten process

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  • Samuel Forbes
  • Stefan Grosskinsky

Abstract

We study the wealth distribution of UK households through a detailed analysis of data from wealth surveys and rich lists, and propose a non-linear Kesten process to model the dynamics of household wealth. The main features of our model are that we focus on wealth growth and disregard exchange, and that the rate of return on wealth is increasing with wealth. The linear case with wealth-independent return rate has been well studied, leading to a log-normal wealth distribution in the long time limit which is essentially independent of initial conditions. We find through theoretical analysis and simulations that the non-linearity in our model leads to more realistic power-law tails, and can explain an apparent two-tailed structure in the empirical wealth distribution of the UK and other countries. Other realistic features of our model include an increase in inequality over time, and a stronger dependence on initial conditions compared to linear models.

Suggested Citation

  • Samuel Forbes & Stefan Grosskinsky, 2022. "A study of UK household wealth through empirical analysis and a non-linear Kesten process," PLOS ONE, Public Library of Science, vol. 17(8), pages 1-16, August.
    • Handle: RePEc:plo:pone00:0272864
    DOI: 10.1371/journal.pone.0272864
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    References listed on IDEAS

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    4. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
    5. Eoin McLaughlin & Nick Hanley & David Greasley & Jan Kunnas & Les Oxley & Paul Warde, 2014. "Historical wealth accounts for Britain: progress and puzzles in measuring the sustainability of economic growth," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 30(1), pages 44-69.
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