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Evolutionary Model of the Personal Income Distribution

  • Kaldasch, Joachim

The aim of this work is to establish the personal income distribution from the elementary constituents of a free market; products of a representative good and agents forming the economic network. The economy is treated as a self-organized system. Based on the idea that the dynamics of an economy is governed by slow modes, the model suggests that for short time intervals a fixed ratio of total labour income (capital income) to net income exists (Cobb-Douglas relation). Explicitly derived is Gibrat’s law from an evolutionary market dynamics of short term fluctuations. The total private income distribution is shown to consist of four main parts. From capital income of private firms the income distribution contains a lognormal distribution for small and a Pareto tail for large incomes. Labour income contributes an exponential distribution. Also included is the income from a social insurance system, approximated by a Gaussian peak. The evolutionary model is able to reproduce the stylized facts of the income distribution, shown by a comparison with empirical data of a high resolution income distribution. The theory suggests that in a free market competition between products is ultimately the origin of the uneven income distribution.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37865.

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Date of creation: 30 Mar 2012
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Handle: RePEc:pra:mprapa:37865
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  1. Kaldasch, Joachim, 2011. "Evolutionary Model of Non-Durable Markets," EconStor Preprints 50531, ZBW - German National Library of Economics.
  2. Peter Richmond & Sorin Solomon, 2000. "Power Laws are Boltzmann Laws in Disguise," Papers cond-mat/0010222, arXiv.org.
  3. Kaldasch, Joachim, 2011. "Evolutionary model of an anonymous consumer durable market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(14), pages 2692-2715.
  4. A. Meltzer & Peter Ordeshook & Thomas Romer, 1983. "Introduction," Public Choice, Springer, vol. 41(1), pages 1-5, January.
  5. Pammolli, Fabio & Fu, Dongfeng & Buldyrev, Sergey V. & Riccaboni, Massimo & Matia, Kaushik & Yamasaki, Kazuko & Stanley, H. Eugene, 2006. "A Generalized Preferential Attachment Model for Business Firms Growth Rates: I. Empirical Evidence," MPRA Paper 15983, University Library of Munich, Germany.
  6. Joachim Kaldasch, 2012. "Evolutionary Model of the Growth and Size of Firms," Papers 1208.1123, arXiv.org.
  7. S. V. Buldyrev & F. Pammolli & M. Riccaboni & K. Yamasaki & D.-F. Fu & K. Matia & H. E. Stanley, 2007. "A generalized preferential attachment model for business firms growth rates," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 57(2), pages 131-138, 05.
  8. Barigozzi, Matteo & Alessi, Lucia & Capasso, Marco & Fagiolo, Giorgio, 2009. "The distribution of households consumption-expenditure budget shares," Working Paper Series 1061, European Central Bank.
  9. Anand Banerjee & Victor M. Yakovenko & T. Di Matteo, 2006. "A study of the personal income distribution in Australia," Papers physics/0601176, arXiv.org.
  10. Victor M. Yakovenko & J. Barkley Rosser, 2009. "Colloquium: Statistical mechanics of money, wealth, and income," Papers 0905.1518, arXiv.org, revised Dec 2009.
  11. Banerjee, Anand & Yakovenko, Victor M. & Di Matteo, T., 2006. "A study of the personal income distribution in Australia," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 54-59.
  12. 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.
  13. Growiec, Jakub & Pammolli, Fabio & Riccaboni, Massimo & Stanley, H. Eugene, 2008. "On the size distribution of business firms," Economics Letters, Elsevier, vol. 98(2), pages 207-212, February.
  14. A. P. Thirlwall, 1983. "Introduction," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(3), pages 341-344, April.
  15. Fu, Dongfeng & Pammolli, Fabio & Buldyrev, Sergey V. & Riccaboni, Massimo & Matia, Kaushik & Yamasaki, Kazuko & Stanley, H. Eugene, 2005. "The Growth of Business Firms: Theoretical Framework and Empirical Evidence," MPRA Paper 15905, University Library of Munich, Germany.
  16. Joachim Kaldasch, 2011. "Dynamic Model of Markets of Homogenous Non-Durable," Papers 1109.5791, arXiv.org, revised Jul 2015.
  17. Adrian Dragulescu & Victor M. Yakovenko, 2000. "Statistical mechanics of money," Papers cond-mat/0001432, arXiv.org, revised Aug 2000.
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